Scratch the surface of Stephen Harper’s G20 agenda and you’ll find China.
Instead of the once all-important United States, China will, more than anything, determine whether the Prime Minister can claim success at the global gathering in June.
Mr. Harper is looking to harness China’s increasing clout in opposition to a global bank tax that’s supported by many of Canada’s wealthy allies. But he’s also pressing China to boost the world economy with spending, or by revaluing its currency, while Western nations tame debts.
The G8 revolved around relationships with the United States, but the G20 increasingly revolves around a core G2 of the U.S. and China. The Prime Minister’s agenda-setting this week demonstrated that.
On Wednesday, Mr. Harper dispatched ministers to voice opposition to a global bank tax in Washington, but also New Delhi and Shanghai.
His government is trying to enlist big developing countries to quash global bank-tax proposals, and China’s weight is key. Several Western countries that bailed out banks, including the U.S., France and Britain, have proposed their own taxes, and so have reason to want them to be global.
Mr. Harper pointed to places where allies could be found: emerging economies that also feel their banks didn’t cause the 2008 financial crisis, and so shouldn’t pay. Yesterday, Treasury Board President Stockwell Day met a senior Chinese official and reported he “fully identified” with Canada’s argument.
China has a long-standing grievance that power in international financial institutions such as the World Bank and IMF rests too much with Europe and the U.S.. It somehow fits with resentment at being asked to pay for a crisis created by reckless behaviour in those countries, said University of Alberta political scientist Wenran Jiang
On another issue, however, Mr. Harper is siding with traditional allies to pressure China.
On Monday, he sent a letter to G20 leaders urging them to set deficit-cutting plans to prevent a new wave of financial instability triggered by fears of defaults, like the worries that hit Greece and threaten to spread in Europe.
A crucial point in the letter was directed at China. He preached co-operation so that deficit-cutting doesn’t derail economic recovery. “Care must be taken to design consolidation plans so they do not halt recovery but sustain it, while looking to countries with high savings to provide greater support for demand,” Mr. Harper wrote.
That was a way of saying China has to spend more, lower trade barriers, or increase the value of its currency to boost the world economy while Western governments cut. China, with low debt, massive foreign-currency reserves and high household savings, is the key high-savings country.
It’s not a new theme. G7 countries have been urging China to revalue its currency for years because its low value makes it easier for China to sell exports, and less likely that it will buy imports.
But China has resisted big change: its government, like others, is under pressure to create jobs, and it fears low-cost manufacturing jobs will be lost if its exports cost more.
The same force that makes Beijing a potential bank-tax ally – resentment at paying for a Western crisis – could heighten resistance. China’s government faces domestic pressure not to sacrifice Chinese jobs to foreign arm-twisting, Mr. Jiang said.
Western governments are tailoring the message: U.S. Treasury Secretary Timothy Geithner is now avoiding currency complaints and calling on China to lower trade barriers to allow more imports. China could also support the world economy by extending and expanding its stimulus spending, which has short-term benefits for Beijing.
Getting some mix of those changes is key to Mr. Harper’s own agenda for the G20. As with the bank tax, it shows that Mr. Harper, who is thawing bilateral relations with Beijing, now needs a China strategy on the world stage.
