The core issue

The news item that caught our eye most intriguingly this week was about the G20 finance ministers meeting in North Carolina at which the concluding communique draft was accepted by all participants except for China. And G20 includes not only the obvious Western countries, but also all the key BRICS countries and more—India, Brazil, even Russia. They all agreed to the final communique, but China did not. The reason is that the communique listed out the key problems including “excessive” trade surpluses and “non-market” policies. And all other 19 countries were up for endorsing it. This creates an interesting new dynamic, and highlights that these issues are not simply a concern for not just Western countries. In other words, the world.

This problem, the China export tsunami, has been growing since around 2020 and in a way grew out of the property market slump which began in that year and continues still. Property had been the main pillar of China’s economy, and then it wasn’t. Something had to replace it, and it is arguable that exports were identified as the only alternative to keep the economy healthy—boosting domestic consumption would be the obvious method but it has so far proved to be unattainable for the system. Boosting exports has associated risks—strained relations with trading partners as a start, and that is what we saw at the North Carolina meeting.

Now it is out in the open, it will be interesting to see how this topic will be addressed at other meetings coming up, including another G20 finance ministers meeting Bangkok next month, APEC meetings in Hong Kong and Shenzhen in October and November, and then the G20 leaders’ summit in Miami in December. One can expect a lot of behind-the-scenes lobbying to take place before these meetings aiming to shift that 19-1 score.

Have a great weekend.