At the upcoming Group of Seven (G7) finance chiefs meeting, China is expected to be the focal point of discussions as the world’s major economies seek to diversify their supply chains away from the Asian giant.
However, they also hope to gain Beijing’s cooperation in addressing global debt issues, highlighting the complex relationship between the G7 and China.
Diversifying supply chains and addressing debt
One of the primary goals of the G7 finance leaders is to establish supply chains less reliant on China, emphasizing partnerships with low and middle-income nations.
Japan, this year’s G7 chair, has prepared a comprehensive list of topics related to China, including an ambitious plan for supply chain diversification.
As part of its outreach efforts, Japanese Finance Minister Shunichi Suzuki invited the African Union chair Comoros, Brazil, India, and Indonesia, among others, to a meeting on Friday. China, however, was not invited, even though emerging nations’ debt issues are high on the agenda.
Sri Lanka’s debt crisis and China’s role
Simultaneously, Japan is courting China to join a creditor nations’ meeting designed to resolve Sri Lanka’s debt crisis. The country attended the first round of talks on Tuesday as an observer but not as an official participant.
As the world’s largest official bilateral creditor, China is urged to participate in meaningful debt relief for struggling countries. However, Treasury Secretary Janet Yellen expressed concern last month that the Asian giant has been a “roadblock” to necessary action for too long.
The G7 meeting, set to begin on Thursday in the Japanese city of Niigata, will also be overshadowed by the escalating risk of a U.S. debt default.
This crisis poses a significant challenge for Japan, the world’s largest holder of U.S. debt. G7 central bank chiefs are expected to focus on inflation, as many of their economies are at an inflection point, with previous aggressive interest rate hikes beginning to impact growth and the banking system.
Challenges ahead
Despite the G7’s efforts to reduce reliance on China, it remains unclear whether they can convince emerging economies to assist in building alternative supply chains.
Many of these countries have been affected by aggressive U.S. rate hikes, increasing their dollar-denominated debt burden.
Takahide Kiuchi, an analyst at Nomura Research Institute, commented, “The debt problems of emerging nations are becoming increasingly serious due in part to the strong dollar.” He also noted that the G7 talks’ agenda reveals a growing politicization, with an emphasis on countering China.
As the finance chiefs convene to tackle these pressing issues, the outcome of their discussions will likely shape the future of global economic relations and the balance of power between the G7 and China.
