Preview: China and US debt issues could be the star of G7 finance ministers’ talks

Finance


  • Japan to host G7 financial summit May 11-13
  • Rising risk of U.S. debt default could intensify Ms Yellen
  • G7 aims to reach agreement on supply chain diversification from China
  • Outreach meeting to discuss debt problems in emerging countries
  • Stubbornly High Inflation, Slowing Growth Amid Controversial Themes

TOKYO (Reuters) – China will be the elephant in the room at this week’s G7 financial summit. It will seek to diversify its supply chain away from China, but will seek cooperation from the Chinese government. Contribute to solving the global debt problem.

The conflicting goals underscore the vulnerabilities faced by wealthy G7 democracies due to their heavy dependence on China, the world’s second-largest economy and second-largest external holder of U.S. debt. built on sexuality.

Rising risks of a U.S. debt default could shake financial markets already nervous after recent bank failures, and will overshadow a three-day meeting that begins Thursday in Niigata, Japan. .

Treasury Secretary Janet Yellen attends the G7 financial summit, while US President Joe Biden hinted Tuesday that he may cancel a visit to Hiroshima for next week’s summit if the debt problem is not resolved. bottom.

Yellen warned Monday of the damage a default could do to the U.S. economy and financial markets, saying, “The dollar, and U.S. Treasuries, are seen as safe haven assets that underpin the entire global financial system.” said.

“It’s a trusted, ultimate safe-haven asset, and an inability to raise the debt ceiling and undermine the U.S. credit rating would put it at risk. So that’s a real concern.” is.”

The US debt crisis is a headache for Japan, this year’s G7 presidency and the world’s largest US debt holder.

Other key themes to be discussed at this week’s G7 meeting include how to strengthen the global financial system, steps to prevent Russia from evading sanctions for its invasion of Ukraine, and stubbornly high inflation. Economic risks are included, Japanese officials said.

Japan hopes to issue a G7 joint statement after the meeting, they added.

China’s slowdown looms

As host country, Japan has developed a long list of other themes, many of which are related to China, that are likely to leave policymakers little time to enjoy Niigata’s prized rice wine.

Among them are plans to agree on ambitious statements to diversify supply chains “away from countries like China” through partnerships with lower and middle income countries.

Japan’s Finance Minister Shunichi Suzuki has stressed his desire to win the “Global South” and invited Comoros, the African Union presidency this year, to an outreach conference on Friday.

Five more countries were invited for outreach, including Brazil, India and Indonesia, but not China.

Meanwhile, the Japanese government is asking China to join the creditor nations meeting it has launched to settle Sri Lanka’s debts. The Chinese government attended the first round of talks on Tuesday as an observer rather than an official participant.

As the world’s largest bilateral creditor nation, China should participate in meaningful debt relief for troubled countries, but for too long it has served as a “barrier” to necessary action, Yellen said. said last month.

There is uncertainty as to whether the G7 will be able to convince emerging economies to help build supply chains that are less dependent on China, many of which have been hit by aggressive U.S. interest rate hikes, The dollar-denominated debt burden increased.

Takahide Kiuchi, an analyst at Nomura Research Institute, said, “Emerging countries’ debt problems are worsening due to the strength of the dollar.

“The agenda of the talks shows that the G7 is increasingly politicized in nature, with an emphasis on countering China.”

Inflation will remain a key issue for G7 central bank governors. Many countries are facing a tipping point, with growth beginning to slow due to past aggressive interest rate hikes and banking systems beginning to destabilize.

The International Monetary Fund (IMF) last month downgraded its 2023 global growth outlook, warning that further turmoil in the financial system could push output to near-recession levels.

Data released on Tuesday showed China’s imports contracted sharply and export growth slowed in April, with a strong recovery in the Chinese economy offsetting an expected slowdown elsewhere in the world. It dashed the expectations of policy makers that it would.

Report by Laika Kihara and Tetsushi Kajimoto. Additional report by Takaya Yamaguchi.Edited by Kim Coghill

Our standards: Thomson Reuters Trust Principles.



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