China has a clear goal at the G-20 summit in London. It wants to create a new international financial system and earn more say for itself and developing countries. "The summit should determine a clear goal, a timeline and the way to get there," demanded Chinese Vice Premier Wang Qishan shortly before his departure for Europe.
Portraits of US President Barack Obama (r) and Chinese President Hu Jintao (l) at a Beijing exhibition of paintings of state leaders attending the G-20 Summit.
Where at previous conferences they were happy to stay in the background, this time China's officials will try to set the tone. The chairman of Beijing's central bank Zhou Xiachuan has already demanded a new international reserve currency under the supervision of the International Monetary Fund (IMF).
Chinese officials say that the crisis requires "creative reforms to the existing international monetary system," with a reserve currency that's "stable" and that would be spent according to "concrete rules."
Until now, Special Drawing Rights have served as a sort of artificial currency, a standard measurement that was designed to ease the financial transactions between the IMF's 185 members. SDRs are defined in terms of a basket of major currencies, including the euro, the US dollar, the British pound and Japanese yen. Every day at noon London time, the SDR value is determined based on the exchange rates of the real currencies making up the basket.
Zhou's recommendation reflects China's annoyance at the politicians and bankers on the other side of the Pacific who, from the Chinese perspective, were responsible for causing the global financial crisis and are now threatening to bring the entire developing world down with them.
"They want out of this mess," said Benita Ferrero-Waldner, the European Union's Commissioner for External Relations, during a visit to Beijing earlier this week. "They are very concerned."
Nonetheless, China's own economic experts still estimate that the domestic economy is in relatively good shape. Realistic estimates peg the country's economic growth this year to about 6.5 percent -- quite robust, even if it falls short of the officially announced target of 8 percent growth. The debts produced by China's 460 billion ($610 billion) stimulus program amount to only to 3 percent of its gross domestic product (GDP.)
Chinese officials are quick to point out that any country that's managed to build such a strong economic foundation for themselves is going to expect something in return for helping to bail out less solvent countries -- more sway, for example, in the IMF. "As the world's third largest economic power and possessor of the world's largest currency reserve, China has earned a more prominent place in financial organizations," says Yi Xianrong from the Chinese Academy for Social Sciences.
'Concerned about the Safety of our Assets'
The People's Republic of China is indeed underrepresented at the IMF. Currently, it only has 3.7 percent of the votes (by comparison, the EU has 32 percent and India has 1.5 percent.) The Chinese are also annoyed by the fact that the IMF charter codifies American dominance over the organization. With 17 percent of the votes, Washington can block any decision.
It's not yet clear what percentage of the votes at the IMF China would like to have. Nor is it clear which states are ready to sacrifice their own votes for China's sake, especially given the fact that China's own currency can't be freely exchanged on international markets.
China's President Hu Jintao, during his first meeting with Barack Obama in London, will likely demand guarantees that China's investments in the United States will be free from meddling. "Of course, we are concerned about the safety of our assets," admitted Prime Minister Wen Jiabao at the beginning of March.
Specifically, the Chinese are concerned that America's efforts to stimulate their own economy is going to cause massive inflation of the US dollar. The Chinese were not reassured when Washington announced its intention to buy "toxic assets" off the balance sheets of American banks.
If the dollar loses value, Beijing's assets would correspondingly shrink. Over time, China's bankers have accumulated US treasury bills with a value of around $740 billion. That accounts for about 46 percent of its total currency reserves.
'We Hate you Guys'
That's how Beijing came over time to finance America's debts, though it sometimes seemed China had no choice. Chinese profits from exports to the US had to be invested somewhere.
For the foreseeable future, China doesn't see a sensible alternative. "Except for US Treasuries, what can you hold?" asked Luo Ping, China's chief bank regulator, last month in New York. His tone was exasperated, an unusual flash of emotion from a Chinese government official.
"Gold?" Ping continued. "You don't hold Japanese government bonds or UK bonds." US treasuries are the only choice available, he said, and not just for China. "We know the dollar is going to depreciate, so we hate you guys but there is nothing much we can do."
Andy Xie, a Shanghai economics expert, agrees. "China is being held hostage," he says. "China is America's bank and America is in effect saying, 'You can't make any demands. If I go under, you won't get your money back.'"
The IMF potentially offers a way out for China. Beijing is apparently ready to strengthen the institution and shore it up financially, following the example set by Japan's $100 billion contribution. China's Vice Prime Minister Wang said, "We support the plan to increase the IMF's means and, to that end, we will do our part to the best of our ability."
Hu Xiaolian, the deputy governor of China's Central Bank, recommended last week that IMF begin issuing bonds -- no doubt with the intention of one day investing China's foreign currency reserves in those securities rather than in US treasury bills.
Central Bank chief Zhou knows that his idea for a new global currency would require "extraordinary political vision and courage." At the same time, experts caution not to take the suggestion all too seriously. Political observers in Beijing say that Zhou and his advisors are well aware that there is no practicable alternative to the dollar for the moment.
"Reform has to be based on reality," says Yi Xianrong of the Academy for Social Sciences. "Our efforts should thus be based on the given international currency system, in which the dollar is dominant."
Others in China are less pleased with their government's posturing ahead of the G-20 summit. Yu Yongding, president of the Institute for Global Economy and Politics at the Academy for Social Sciences says, "The rich countries already have our wallets in their sights. We have good reasons to avoid meeting their demands."