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G7 softens tone on China

February 15, 2009

By Guy Dinmore in Rome, Daniel Dombey in Washington and Kathrin Hille in Beijing

Published: February 15 2009

The US and other Group of Seven industrialised countries have stepped back from criticism of China in a push for greater cooperation with Beijing and a more unified response to the global financial crisis. In a communique issued following their meeting in Rome at the weekend, G7 finance ministers adopted milder language than recently regarding China’s handling of its currency. Tim Geithner, US Treasury secretary, also used a more conciliatory tone towards Beijing than he did last month, when he accused China of manipulating its currency to benefit exporters.

Hillary Clinton, US secretary of state, will this week become the first senior member of the new administration to visit China as analysts look for clues as to how Washington will handle one of its most important economic relationships.

In a speech before she left, she labelled a “positive, co-operative relationship” between Beijing and Washington as “vital to peace and prosperity, not only in the Asia-Pacific region but worldwide” and also announced the resumption of military contacts between the two nations.

However, in a sign of potential for tension, China on Sunday hit out at a “Buy American” provision in the $787bn economic stimulus package approved by the US Congress last week. “History and economic theory show that in facing a financial crisis, trade protectionism is not a way out, but rather could become just the poison that worsens global economic hardships,” the official Xinhua news agency said in a commentary.

Aides at the G7 finance ministers meeting in Rome said the US and the UK in particular pushed for the group to take a more conciliatory approach towards Beijing ahead of a broader G20 summit in London on April 2.

“The G7 has realised that China needs to be brought into the fold of the global financial system rather than be treated as a pariah just because of currency inflexibility,” UBS said in a note on Sunday on the meeting. “This is also a realisation that as the world’s largest foreign exchange reserve holder and the US’s largest creditor nation, China not only holds the purse strings but its continued growth is crucial to helping the world recover from the economic crisis.”

In its communique, the G7 welcomed China’s fiscal stimulus and “continued commitment to move to a more flexible exchange rate” – notably milder language than the G7 meeting in Washington in October, which had called for “accelerated appreciation” of the renminbi.

Although the currency has appreciated more than 20 per cent against the dollar since 2005, many US politicians accuse the country of artificially depressing it – a charge made by US president Barack Obama during his election campaign.

At his press conference, Mr Geithner said the US was committed to working with China. “We very much welcome the steps they’ve taken to stimulate domestic demand,” he said.

Copyright The Financial Times Limited 2009

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