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China follows US footsteps at G-Zero

It is getting boring to reiterate how useless the Group of 20 is as a global leadership body. But the so-called financial leaders of the world wasted three days, a day to get to Paris and back and two days in feasting and chattering, to reach a communique saying that they had agreed on a rather fluffy set of economic indicators that could form the basis of an agreement that might offer the opportunity of taking concerted action to head off a potential future global economic crisis.

Wow, that's some agreement, or maybe not. That is because it is only the first step in a complicated waltz. The leaders of the G20 have to go through some more feasting and chattering in April before they can get to the next step - which is to agree on 'indicative guidelines' on which the indicators might be assessed.

Finally, they will actually have to agree on what measures to take when the guidelines are breached and the world looks as if it may be heading towards a crisis.

An e-mailer to London's Daily Telegraph was polite in summing up the meeting: 'All sizzle, no steak. All foam, no beer. All fizzle, no gin. There, now my post has as much substance as this G20 summit.'

The ministers and central bank governors were supposed also to discuss the urgent concern about rising food prices, which Dominique Strauss-Kahn, the managing director of the International Monetary Fund, said are 'creating a lot of problems for low-income countries and vulnerable people'.

Robert Zoellick, the World Bank president, reinforced the warning by saying that 'we're reaching a danger point' in some countries facing high food prices. He urged the G20 to 'put food first in 2011'.

The ministers might have spent time more usefully looking at the lopsided and largely jobless economic recovery that is under way. Again Strauss-Kahn issued a warning that, 'the social crisis is still there and very strong. If you have growth that doesn't transform into jobs, what does that mean for the man in the street?' Food and jobs got squeezed off the agenda because the ministers had more important things to deal with.

Instead the G20 members spent their time quibbling over words. Christine Lagarde, the French finance minister who was presiding, broke away from standard diplomatic protocol to describe the exchanges as 'frank, sometimes tense'.

Let's be honest and blunt about it: China is to blame and demonstrated the G20 is in fact the G-Zero. Back in Beijing, President Hu Jintao may be applauding the way that finance minister Xie Xuren resisted the rest of the world and refused to allow anyone to breach China's economic sovereignty by allowing discussion of its foreign exchange reserves, the exchange rate of the yuan or the country's current account surplus.

There is something contradictory here, however; the exchange rate of the yuan is its rate against other currencies, so the rest of the world is involved by definition; similarly, the current account is the balance of China's economic transactions with the rest of the world, so, ditto, this is not a matter of sovereignty but the essence of economic relations between China and the world.

US treasury secretary Timothy Geithner was not in celebratory mood after the G20, but took extra time out to beat up on China for its 'substantially undervalued' currency and to demand bigger steps towards revaluation.

If Geithner had a sense of history, he would understand that it was his predecessors in Washington at the time of the founding of the IMF and World Bank who staunchly resisted the idea that those institutions should have any powers over trade and current account surplus countries to curb those surpluses. The US was then in that happy position of being a victor in war and the surplus country.

For decades long after that Washington used its economic muscle to bully friends and foes alike. It deployed immense economic firepower as the largest shareholder and only veto-wielder in the IMF to exert pressure on countries, and if the IMF dared to point a finger or criticised American economic policies, Washington ignored the criticism.

There is also the highly relevant issue, which is surely ripe for a full and frank discussion, of how much US and Western multinational companies have contributed to the global imbalances by massive outsourcing of factories and jobs to China. Then add the role of Wall Street in helping to create the financial mess that brought the world to the brink of economic meltdown.

If you add all these lessons of history, the highly battered and distinctly grimy pot that is the US should not complain when the still rather new Chinese kettle starts singing the same tune. But other countries that risk being caught in the crossfire, such as Brazil seeing its currency appreciate sharply, or India and Bangladesh facing rapid rises in the prices of essential imported commodities, or indeed Americans and Europeans who can't find jobs, or ordinary Chinese workers who have not benefited from the boom or the massive mountain of foreign exchange reserves, do have a right to ask at least that the big issues be explored openly and honestly and that leaders who claim to represent 85 per cent of global GDP should stop playing semantic games or get out.

To use that other overworked image of a global world, if a single butterfly flapping its wings deep in the Amazon jungle can be a harbinger of a typhoon on the other side of the world, then China's exchange rate or Wal-Mart's investments in China can have a big impact on jobs in the US, Vietnam or Kenya or Nigeria.

What is most depressing is that there is little honesty in Beijing's position or willingness to examine the issues and the leaders are using the media to stifle discussion. In its report on the Paris meeting Xinhua quoted the Banque de France governor Christian Noyer as saying that the 'meeting was very co-operative' and full of 'rich debate, deep discussion'.

China's official media are getting a reputation for being economical with the facts about economic news. When the US Treasury issued its long-delayed report to congress on currency issues and declined to label China a 'currency manipulator', the People's Daily promptly declared that, 'Major trading partners of the United States, including China, did not manipulate their currencies to gain an unfair advantage in international trade in 2010.'

A whole string of criticisms of China in the Treasury report were ignored by the People's Daily but figured prominently in other news reports. Bloomberg, for example, reported that: 'The US declined to brand China a currency manipulator while saying its No 2 trading partner has made 'insufficient' progress on allowing the yuan to rise.'

Whether or not China manipulates or massages its currency is a complex issue and whether it should be labelled a manipulator is still more complicated. But Beijing should allow more open debate and exploration of the issues, in its own interests.

Building such a large pile of reserves that are vulnerable to yuan revaluation is a recipe for disaster. Promoting growth based on exports and investment rather than consumption denies the Chinese people the fruits of their labour. Beijing should be using global debate as a cover to speed the adjustment of its economic policies to greater reliance on consumption and to higher quality exports that will add value for China.

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