G7 disagrees on how to deal with China

Financial leaders of the G7 countries have mixed views on the idea of controlling investment in China – which is considered a double-edged sword.

China is a common concern for G7 finance leaders meeting in Niigata, Japan, this week, where they will discuss the idea of targeted controls on investments in China.

Japan, the current chair of the G7, is pushing for efforts to diversify supply chains and reduce dependence on Beijing. However, the G7 remains divided on how much to do against the world’s second-largest economy , as restricting trade with China would hurt export-dependent countries like Germany and Japan.

US Treasury Secretary Janet Yellen said on May 11 that many G7 members share their view that China is using its economic influence to pressure other countries. The G7 is considering ways to prevent this action.

"We are engaged in discussions with our colleagues at the G7. I hope that this will continue after the meetings are over," Yellen said.

G7 financial leaders attend a conference in Niigata. Photo: Reuters — G7 financial leaders attend a conference in Niigata. Photo: *Reuters*

Germany, increasingly concerned that China is a strategic rival, is considering steps to reassess its relationship with China. But it is also wary of being seen as a country that pits the G7 against China. Reuters reported that Germany is urging the European Union to be cautious about imposing new sanctions on China over the Ukraine conflict.

Next week, the G7 leaders summit will also discuss the issue of targeted controls on investments in China. This week’s discussion by financial leaders will lay the groundwork for next week’s meeting in Hiroshima.

Japan is cautious about the idea, given the huge impact it would have on its economy and global trade. "It would be difficult to restrict overseas investment. The US, for example, is making a lot of money investing in China. This raises the question of whether they would actually impose restrictions," one of the officials told Reuters.

British Finance Minister Jeremy Hunt also told Nikkei yesterday that the G7 needed to curb China's economic power. However, he did not mention investment controls.

Another less controversial initiative supported by the G7 is cooperation with low- and middle-income countries. This is aimed at diversifying supply sources. Japan has invited six non-G7 countries to today's meeting to discuss supply cooperation.

Still, analysts remain skeptical about the effectiveness of these measures in containing China. "It is difficult to exclude China from the game, given its economic power. That could cause a split in global trade, affecting growth in the world and in the G7 countries themselves," said Toru Nishihama, an economist at Dai-ichi Life Research Institute.

The G7 is also struggling to help emerging countries deal with debt problems caused by China, the world’s largest sovereign creditor. US officials are unhappy with China’s slow pace of restructuring debt for troubled countries. Meetings on the issue last month at the IMF-World Bank annual meetings produced little progress.

G7 financial leaders are expected to issue a joint statement on May 13, after concluding a three-day meeting.

Ha Thu (according to Reuters)

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