A Cozy Group of Elites Debate a Complex Superpower
(Bloomberg Opinion) -- Once upon a time, the Group of Seven was a cozy bunch of elite powers making the world’s most important decisions. That ended in dramatic fashion in 2009, when it became clear that up-and-comers like China needed a seat at the table. The Group of 20 thus became the main body for deliberation. Fast forward more than a decade, and China has again commanded attention at the more intimate gathering of leaders, though not as an economic savior to be fawned over, but as a source of anxiety and division.
G-7 chiefs ended their summit on the English coast at odds over how explicitly they should try to counter the Communist giant. U.S. President Joe Biden pressed other members to launch an infrastructure program in response to China’s Belt and Road initiative, among other measures. Beijing was cited in the communique for its crackdown on Hong Kong and Xinjiang, and the Cornwall conclave backed a probe into Covid-19’s origins. Yet the Europeans were tepid in their indictment, with French President Emmanuel Macron saying the gathering shouldn't be perceived as anti-China.
Beijing, in response, reiterated that the days when the world’s fate was decided by a few countries are over. What matters is consultation among a bigger group, its embassy in London said.
While G-7 skeptics will point to its lack of unanimity, that there's even a what-to-do-about-China question is notable. The ardor once expressed for the country has diminished, even if it’s not clear what will come next. In 2009, with a modest recovery from the global financial crisis beginning, the merits of the Western model of development were up for debate. It had given the world a housing crisis, the collapse of systemic financial institutions and what was then considered a deep recession.
For Beijing, the aftermath of the collapse of Lehman Brothers Holdings Inc. looked more like a fender bender: Gross domestic product increased almost 10% in 2008 and 9.4% in 2009. The U.S. suffered contractions of 0.3% and 2.8%, respectively. These shifting fortunes helped change the global narrative: If China and its developing-market cohort could become part of the policy machinery to drive the rebound and buttress expansion, the world would be a better place. Beijing was at the heart of this new order. New Delhi, Jakarta, Riyadh and Brasilia were fellow travelers.
The Covid-19 recovery has been decidedly different. Now those emerging markets look more like submerged ones. India and Brazil are wrestling with crippling outbreaks; the former was already in dire economic straits before the pandemic, thanks to a banking crisis that eroded growth in 2019. Indonesia has gone backward for four consecutive quarters.
China still remains the pick of the bunch. It was the only major economy to show any growth at all last year, managing an expansion of 2.3%. The International Monetary Fund expects a figure around 8% in 2021. Impressive as this bounce is, Covid has revealed some vulnerabilities. The GDP collapse in the first three months of 2020 — a decline of 6.8% — was the first in decades. The economy is mortal after all.
Looking forward, it's hard to see Beijing emulating the string of enviable double-digit expansions notched in the early years of this century, after entry to the World Trade Organization. The pace of growth has been steadily slowing for years. It was 6% on the eve of the pandemic. That gradual decline is likely to resume once the dust has settled. China is also a graying society with a shrinking labor force.
Biden, like his predecessor Donald Trump, desires to rein in Beijing's strategic ambitions. Yet China remains a major destination for investment and is among the biggest trading partners of the world’s largest economies. Getting the G-7 to denounce Beijing in broad terms was never in the cards. By riding in Trump’s wake, though, Biden gets the advantage of momentum with none of the embarrassment of the previous administration’s bombast. After the last four years, perhaps we can comfortably call that a win.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Daniel Moss is a Bloomberg Opinion columnist covering Asian economies. Previously he was executive editor of Bloomberg News for global economics, and has led teams in Asia, Europe and North America.
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