For what feels like forever, the United States, Canada, Europeans and others have been calling on China to play a more forceful role in rebalancing the global economy. The argument: with the world's richest countries struggling under a mountain of debt, the time has come for China to relax its export strategy and foster greater domestic demand.
Late Thursday in Cannes, the U.S. was hinting at progress, predicting something of a breakthrough when the Group of 20 releases a statement at the conclusion of its summit Friday.
"You'll see some language I think in the communiqué action plan that comes out of this meeting that really shows a recognition that there is more that China is willing on its own initiative to do to help shift towards domestic consumption-led growth away from an export model that's really outdated and ill-suited for today's conditions," Lael Brainard, the top international adviser to Treasury Secretary Timothy Geithner, told reporters in a briefing, according to a transcript released by the White House.
This is remarkably forthright guidance for a G20 official to put on the record. Usually, this kind of thing is done under the cover of "senior official" or some such. It suggests the U.S. is confident of Friday's outcome.
Ms. Brainard's comments followed a meeting between Mr. Geithner and his Chinese counterpart, Wang Qishan.
The focus of U.S. complaints about China's economic policy is its practice of restraining the value of the yuan, a boon to exporters and a barrier to greater Chinese consumption of imported goods. It could be wishful thinking, but Ms. Brainard seems to believe the Chinese are poised to relent.
"Currency has been part of these conversations," Ms. Brainard said. "I think you'll see some language in the action plan on that. I think China is recognizing the role of greater exchange rate flexibility in helping to shift to domestic demand. It is one of the most powerful instruments, perhaps the most powerful instrument, that China has at its disposal in the near term to both counter inflationary pressures, which is a very high priority for them, and also to shift to domestic, demand-led growth."
Unfortunately, none of the White House reporters asked what seems like a natural follow-up question: If China is about to give on currency, what is it getting in return?