China speaks with authority at Italy summit

By Simon Rabinovitch - Analysis

L'AQUILA, Italy (Reuters) - Six years ago, China attended its first Group of Eight summit as a quiet observer on the sidelines. This week in Italy, it stirred the pot in a debate about the international financial system.

The Asian power's trajectory toward center stage in such a short time and its willingness to broach difficult issues are emblematic of a growing diplomatic assertiveness, especially in the financial sphere.

The turnaround for the G8 has been equally abrupt. Inviting China and other developing countries in 2003 was seen at the time as a forward-looking, almost charitable act of inclusion.

The club of rich nations now frets that China is reluctant to fully engage with it, a sense of insecurity was piqued when Chinese President Hu Jintao hastily withdrew from the Italy summit because of domestic unrest.

An unusually assertive speech by the head of China's delegation on Thursday, however, showed that it meant business.

State Councilor Dai Bingguo indirectly questioned the dollar's dominance by calling for a better reserve currency issuance and monitoring system.

It was the first time a high-ranking Chinese leader had voiced such a demand in a formal speech, let alone in such a powerful multilateral forum. Previously, the idea had only been aired in relatively technical central bank reports.

China's willingness to inject reserve currencies into the discussion was all the more striking for the insistence of Japan, Britain and Canada that it was inappropriate to question the dollar's status at a time of global financial crisis.

"It is in some ways real concern about currency stability but at the same time it is China's response to the macroeconomic imbalance that keeps being raised by G8 members," said Gregory Chin, a Chinese foreign policy expert at York University in Toronto.

As in past years, the G8 nations called this week for an unwinding of global current account imbalances -- veiled criticism of China's massive trade surplus and, by extension, the tight grip it keeps on the yuan's exchange rate.

In beating the drum on reserve currencies, Beijing is returning fire at the United States, effectively deeming it unfit to be the anchor of the global economy.

"China is a rather moderate reformer," said Jin Canrong, international studies professor at People's University in Beijing. "It recognizes that there is no way to expel the U.S. dollar at the moment, but it wants to gradually diversify the international financial system."

PUSHING BACK

Echoes of that willingness to push back, albeit cautiously, can be heard in China's drive to find alternatives to the G8.

Beijing was first invited to attend a G8 summit in 2003 for "informal dialogue." A major question for Chinese foreign policy makers was how close the country should get to the rich nations' group and how it could make its voice heard.