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The G7 and China in the Management of the International Financial System

Professor John Kirton
Department of Political Science
Centre for International Studies
University of Toronto

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Introduction

Speaking on May 17, 1998 at the conclusion of the 1998 annual Summit of the leaders of the Group of Eight major industrial democracies, host Tony Blair noted that in their final session of the Summit, the leaders had "paid particular tribute in the discussion we had this morning to the work that China has done in the aftermath of the Asian financial crisis and to its very strong commitment to financial stability" (Blair 1998). The tribute represented a genuinely heartfelt expression of the gratitude that the G8 leaders and many others felt toward China for not devaluing its currency or taking other measures that would have compounded the challenge the G7 faced in responding to the crisis that cascaded through Asia during 1997. In the world of the G8, where economic and political measures are uniquely linked, it may also have signaled a hope that China might be helpful in coping with the coming challenge identified immediately after by Blair - the need for a "firm and agreed response to the Indian nuclear tests." Whatever the precise blend between past economic performance and future political expectation, it was clear from this passage that China had at long last acquired a strong and comprehensive relevance, as a potential partner, of the major industrial democracies as they worked through the G7 and G8 to offer global governance to an unstable world. China's emerging relevance was underscored by it inclusion in the new G-22 that President Clinton had launched at the APEC leaders' meeting in November 1997, and by China's membership in the new G20 that the G7 finance ministers created in September 1999.

These advances in China's association with the G7 reflected an emerging consensus that China, whatever its current problems, had after two decades of reform, opening, and rapid growth, acquired an increasing influence on the prospects for peace and development of the Asian region and world as a whole, and that it was ready to play a responsible role as the twenty-first century opened. This new consensus was reflected in the intensification of a debate, conducted most visibly among analysts in "think tanks," over how far and by what formula China should become associated with a G7/8 that had expanded in 1998 to embrace Russia as a virtually full partner. It was further evident in the altered attitude toward China of G7 leaders, ministers and officials, who had moved from their initial and longstanding treatment of China as an adversary to punish to an approach premised on China's role as a useful, and in some respects, essential associate. This progression was hastened by the part China played in the Asian-turned-global financial crisis of 1997-9, and in the effort to reconstruct the international financial architecture that came in the crisis' wake. China's role as a highly relevant and responsible power did much to make it a leading member of the new G22 and G22, and, through these mechanisms, an institutionalized associate of the G7. It also raised the question of whether China alone now warrants some form of enhanced, closer attachment with the G7 and G8 itself.

This paper argues that the time has come to consider the rationale, the steps and the forms that such a singular, enhanced association might take, and to develop the options to make such a step possible in the near future. To be sure, any major move toward full membership must await China's demonstrable acceptance of the domestic political values that all G8 members share. Yet China's current clear commitment toward marketization and opening, its existing advances in political and social opening, and the very weakness and instability it is experiencing, in part as a result of implementing those economic measures, puts it in a similar position to the USSR/Russia that the G7 developed a privileged dialogue with in the years from 1991-1993. Moreover, unlike Russia at present, China has the potential to be a source of strength as well as vulnerability in reinforcing the precarious stability that has now returned to the international financial system, and in forwarding the recently interrupted move toward a genuinely global system of open finance. Its current role in the G20, alongside such countries as Argentina, Turkey, and South Korea, is an insufficient recognition of its weight in the world, but also a suitable incubator to socialize it into the role of an effective collaborator at a higher level. The co-incidence of the G7/8 Summits taking place in Okinawa, Japan in July 2000 offers an auspicious occasion and opportunity for taking the first step towards forging this enhanced association.

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