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UPDATED: October 2, 2009 NO. 40 OCTOBER 8, 2009
New Era of Engagement
G20 leaders achieve breakthroughs in sustaining economic recovery and reforming the international financial system at their third summit in Pittsburgh
By CHEN WEN
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China announced a massive $586 billion stimulus package last November to boost domestic demand in the face of slumping exports.

With large amounts of money spent on upgrading infrastructure, increasing rural incomes, promoting social welfare programs and combating environmental issues, China achieved a 7.1-percent gross domestic product growth in the first half of 2009 from the same period a year ago. This came despite the fact that its exports fell for the 10th consecutive month in August.

Chinese President Hu Jintao said at the Pittsburgh summit that China has attached great importance to "comprehensive, balanced and sustainable social and economic growth" and has mainly relied on "expanding domestic demand" in mitigating the impact of the crisis.

To balance its economy, Beijing should remove price distortions, allow more flexibility in exchange rates and improve social services, Dunaway told Beijing Review.

Even so, it will take time for China to establish social security systems for the protection of health care and retirement that will reduce incentives for "precautionary" savings, Nicholas Lardy, a China economy specialist at the Peterson Institute for International Economics in Washington told Bloomberg News.

The G20 countries agreed to increase the quota share to dynamic emerging markets and developing countries at the International Monetary Fund by at least 5 percent and the voting power for developing and transition countries at the World Bank by at least 3 percent to enhance their representation, according to the Leaders' Statement.

They also committed to developing internationally agreed rules by the end of 2010 to improve both the quantity and quality of bank capital and putting them into practice by end-2012.

At the same time, they ruled out short-term exit strategies, promising to maintain their measures to support economic activity until recovery is fully assured.

Protectionism

Despite repeated vows by world leaders at the G20 Washington summit last November and again in London in April to resist protectionism, trade tensions spurred by imbalances appear on the rise.

According to Chad P. Bown, a senior economist and trade expert at the World Bank, the economic recession has "inevitably spawned industry demands for protectionism" in many countries.

In a recent article titled Confronting the Protectionism Spawned by the Crisis, Bown pointed out that "major developed and emerging economies have increased their use of trade-restricting policies such as anti-dumping, safeguards and countervailing measures since the onset of the crisis."

"A tremendous amount of new protectionist activity," he added, "is being directed against China's export in particular."

Take Washington's 35-percent tariff on exports of Chinese-made tires for example. It has been roundly condemned by Beijing as being very damaging to China's tire export industry.

Indeed, announced ahead of the Pittsburgh gathering, it promises to be one of the most contentious issues to date involving the United States, the industrial world's biggest economy and China, the developing world's biggest economy.

"China is the biggest victim of trade protectionism," said Yu Jianhua, Director General of the Department of International Trade and Economic Affairs at China's Ministry of Commerce during a news conference on September 24.

In the first eight months of 2009, according to Yu, a total of 79 cases involving trade remedies—90 percent of which came from G20 members—were brought against China at a cost of $11 billion, up 120 percent over the same period last year.

China's exporting momentum in the past decade has earned it massive trade surpluses as well as frequent accusations of currency exchange manipulation—a factor long criticized as the culprit for international trade imbalances.

China is not seeking long-term excessive trade surpluses, and has been trying to keep a balance between imports and exports, Yu told reporters.

One of the major reasons for the imbalance is the relocation and distribution of industries driven by globalization, he said. "We strongly oppose trade protectionism," Yu stressed.

Climate change

Although no longer a centerpiece of the G20 agenda, dealing with climate change is not an issue that world leaders could afford to neglect as they gathered in one of America's greenest cities to discuss sustainable growth.

"We will spare no effort to reach agreements in Copenhagen through the United Nations Framework Convention on Climate Change (UNFCCC) negotiations," said the Leaders' Statement, without elaboration.

In December, the parties of the UNFCCC will meet for the last time on the government-level for the renewal of the Kyoto Protocol. Spotlights have been cast on the stance of China and the United States—as they are the world's two largest emitters of greenhouse gases.

Chinese President Hu Jintao announced detailed targets and timetables with which to curb greenhouse gas emissions and to invest in clean energy at the UN climate change summit, held two days ahead of the G20 meeting.

This climate summit was "designed to mobilize the political will needed to reach a deal at the UN climate change talks in Copenhagen this December," he said.

U.S. President Obama also vowed to take the climate issue seriously at the opening of the high-ranking UN meeting. His lack of specifics, however, disappointed some environmentalists and activists.

"I think people are expecting the United States' engagement and leadership in this issue," said Jonathan Adams, an expert on climate change at the Washington-based World Resources Institute. "Because it is still vital to build a momentum."

Both China and the United States are trying to strike a balance between boosting economic growth and curbing carbon emissions, Adams told Beijing Review.

He went on to suggest that both countries should encourage the development of climate-friendly technologies to create green jobs and improve energy efficiency, which will help them achieve "quality economic growth."

Overall, the G20 summit is poised to become an institutionalized mechanism as its leaders designated it as the "premier forum" for their "international economic cooperation."

"We agree to meet in Canada in June 2010 and in [South] Korea in November 2010," they said in the Leaders' Statement. "We expect to meet annually thereafter and will meet in France in 2011."

Group of 20

Formally established in 1999 to bring together major industrialized and developing economies to discuss key issues concerning the global economy, the Group of 20 consists of Argentina, Australia, Brazil, Britain, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the United States and the European Union.

(Reporting from Pittsburgh, the United States)

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