G7 China statement could enhance global economic stability

The G7 offer to China for managing economic relations is credible, but careful implementation will be critical in persuading China to respond positively.

Expert comment Published 22 May 2023 3 minute READ

G7 leaders met in Hiroshima with an ambitious agenda set by the Japanese presidency, ranging from strengthening support for Ukraine to enhancing the group’s economic security, to showing the developing world that the group was ready to respond to their calls for a reform of the multilateral system of development finance.

The summit has made progress of varying degrees on all these goals, reflected in a 40-page communique and six free-standing statements. There may also be more private progress in the form of understandings between G7 members – such as on the future evolution of the multilateral development banks – which will only become clear in the outcomes of the Indian G20 Summit in September.

However, the most important outcome from Hiroshima was the agreement reached within the group on handling future economic relations with China.

It is to be hoped that in the coming weeks the Chinese authorities will reflect further on the statement and devise a more positive response which builds on potential areas of agreement

This combined three elements: a clear statement that the G7 did not wish to harm China or to thwart its economic progress and development; an offer to engage with China on a wide range of global challenges from climate change through global health to tackling debt distress; and a statement that the G7 would protect its own economic interests – and those of its partners – by de-risking its economic relationships with China rather than decoupling.

Such de-risking would include resisting non-market policies, strengthening the G7’s response to economic coercion, and a targeted approach to protecting certain advanced technologies.

An explicit statement about relations with China

The latest communique shows how far the G7 has come in its handling of China relations, from a time in the last decade when concerns would be discussed by leaders in private but not reflected in the summit communique, or only anonymously, to the present situation where the G7 has made an explicit statement of how it sees the economic and political relationship with China going forward.

One reason for the G7’s earlier reticence was concern at how China would react to public criticism even if made as part of a wider offer.

The change of approach partly reflects the growing seriousness of the situation with rising trade and investment tensions, particularly in relation to information and communication technologies, as well as tensions over developments in the East and South China seas.

But it also reflects increased confidence within the G7 reflecting the extraordinary unity of purpose triggered by Vladimir Putin’s attack on Ukraine and the global system of international security.

This forced the group to impose unprecedented economic and financial sanctions, demonstrating its unique position at the core of the international financial system, dominating the provision of commercial services and advanced technology, and positioned at the centre of global economic governance.

So far China’s response has been negative, with the Chinese foreign ministry calling in the Japanese ambassador in Beijing to complain about the G7 statement. However, it is to be hoped that in the coming weeks the Chinese authorities will reflect further on the statement and devise a more positive response which builds on potential areas of agreement.

Encouraging a positive Chinese response

Two factors will be important in encouraging such a response: First, that G7 members stick consistently to the consensus they reached in the Hiroshima statement despite inevitable domestic political pressures and attempts by China to drive a wedge between individual members.

Second, that they follow through in systematically implementing the concepts they have articulated to make supply chains more resilient and resist economic coercion. But this involves many difficult trade-offs.

G7 China statement could enhance global economic stability 2nd part

For example, resilience to extreme weather events and pandemics is likely to be enhanced by increasing transparency in corporate supply chains. But this may not be the most appropriate way to protect against national security threats.

Similarly, stating in advance how countries will respond to economic coercion and limiting national discretion over the response would make the deterrent effect more powerful, but countries will be much more reluctant to commit to certain kinds of response if they do not have discretion on applying them.

If China does eventually respond positively to elements of the G7 statement, this could lead to a more stable working relationship with the G7 which would yield major benefits in reducing future risks to the global economy.

Such an outcome would not only benefit China and the West but many other developing and emerging economies, especially given the increase in natural threats the world is facing.