G7 advanced economies convened closed-door financial talks in Japan on May 12, addressing important issues such as bank runs, cyber security, and the establishment of more resilient supply chains to ensure economic security.
The G7, with Japan as its only Asian member, addressed significant challenges this year, including rising tensions with China and Russia due to the war in Ukraine. During discussions among G7 Finance Ministers and Central bank chiefs, the focus was on safeguarding the international rules-based system and countering what they referred to as “economic coercion” by China. However, Beijing responded strongly, accusing the group of wealthy nations of hypocrisy.
In response to the G7’s emphasis on international rules, Chinese Foreign Ministry spokesperson Wang Wenbin criticized the club, stating that the rules they refer to are based on Western ideology and values. He further argued that the G7 is dominated by a small clique that prioritizes the United States, and thus their demands for China to adhere to international rules are hypocritical. Mr. Wang made these comments during a routine news briefing.
China alleges that the United States is impeding its progress as a prosperous and modern nation through trade and investment restrictions. The U.S., however, argues that these measures are necessary for safeguarding American economic security and are specifically targeted rather than intended to undermine China’s economic competitiveness or hinder its advancement. U.S. Treasury Secretary Janet Yellen emphasized this viewpoint before the talks commenced.
China’s relationship with the European Union (EU), a member of the G7, has also been strained due to trade disputes and the EU’s tacit support for Russia. During the talks in Niigata, leaders expressed their intention to explore measures to prevent countries from evading sanctions imposed on Russia, which are designed to hinder its ability to sustain the war.
Both the United States and the European Union clarified that they are not advocating for “decoupling” or severing extensive economic ties with China. Instead, they aim to “de-risk” their relations to avoid overreliance on China.
As the host of the G7 summit, Japan has placed emphasis on establishing a partnership with low- and middle-income countries to develop resilient supply chains that contribute to reducing carbon emissions. One critical concern shared by all G7 countries is the significant concentration of rare earths suppliers, essential for many high-tech products, within China.
The recent failures of banks in the United States and Europe have added complexity to the task of steering the global economy towards a sustainable recovery from the pandemic while addressing surging inflation that reached multi-decade highs in the past year.
Japanese Finance Minister Shunichi Suzuki highlighted the rapid spread of financial concerns through social networking sites and the potential for bank runs caused by online banking, which allows money withdrawals outside of regular business hours.
The collapses of Silicon Valley Bank and other lenders were primarily attributed to the pressure of interest rate hikes. These rate increases, aimed at making borrowing more expensive, are intended to slow down business activity and cool inflation.
Christine Lagarde, the head of the European Central Bank, expressed the importance of the meetings in Niigata as an opportunity to exchange insights and find ways to enhance global stability and achieve the desired price stability promptly.
The talks among financial experts also address the looming question of whether President Joe Biden and Congress will reach an agreement on raising the national debt ceiling before the US government faces a potential inability to pay its bills. Treasury Secretary Janet Yellen warned that a default on the national debt would have catastrophic consequences and was deemed “unthinkable.”
The meeting between President Biden and lawmakers on this matter has been rescheduled to May 18, allowing for ongoing staff discussions over the weekend. While administration officials portrayed this delay as a positive step, it does not indicate a breakdown in the negotiations.
These discussions in Niigata, taking place over three days, are the final round of ministerial meetings leading up to the G7 summit scheduled to be held next week in Hiroshima, Japan.