“G-2” Meet at G-20 Summit in London

With the G-20 summit underway in London to address the global financial crisis, analysts believe that China is in a prime position to play a critical role in reshaping the financial and economic structure of the world. China has advanced so far into the international spotlight that analysts are referring to a meeting between the President of the People’s Republic of China Hu Jintao and United States President Barack Obama, as a meeting of the “G-2”, alluding to the interdependence of the two countries.

While much of what was said behind closed doors is unlikely to reach the public ear, Premier Hu Jintao had previously disclosed that Beijing is concerned about what is seen as an over-investment in U.S. Treasury debts. For many years now, China has been exporting far more to the U.S. than it has imported, resulting in a huge trade surplus as well as accumulating close to US$2 trillion in foreign currency reserves with much of that money being put into buying U.S. government debt. This has enabled the U.S. to keep credit and mortgage interest rates low, and is seen as a contributing factor in creating the U.S. housing bubble which burst late 2008. The Obama administration has been called on to guarantee the safety of China’s assets in the United States, and a Washington spokesman responded with reassurances that every investor, including the Chinese government, can have “absolute confidence in the soundness of investments in the United States.”

China’s economy has not been immune to the global financial turmoil and since late 2008 it has been hit hard by the decline in demand for Chinese goods by Western markets. With around 40 percent of China’s growth dependant on the export of its products, factory closures and job losses started to climb. In November Beijing announced a $586 stimulus package to encourage consumer and business spending and the creation of millions of jobs. But analysts agree that China can not turn the situation around on its own. China needs the U.S. to succeed in righting its own economy, while at the same time avoiding protectionism, which is then likely to get Chinese exports to the U.S. flowing again – a win-win situation.