China's Rising Clout Spotlighted at Finance Chief Meetings Before G7 Summit

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By Tetsushi Kajimoto

TOKYO, Japan (Reuters) – The Group of Seven advanced economies' weekend meeting of finance chiefs did not mention China in their communique as a potential threat. However, there are signs that the second largest economy in the world will be a major player at the summit this week in Hiroshima.

The G7 Finance Chiefs met for three days in Niigata in Japan to address China's global rise. It was their first outreach since 14 years.

Analysts say that the meeting with Brazil and other countries such as India, Indonesia and South Korea, was primarily about debt and infrastructure investments at a high level, and was a tacit response to China's Belt and Road Initiative.

Masamichi Adachi is an economist at UBS Securities. She said that the G7 reflects the changes in the global order after the loss of U.S. dominance. "Nobody is able to create a grand plan with the shifting of power," said Masamichi Adachi, economist at UBS Securities.

The G7 host Japan convinced its G7 counterparts that a new program would be launched by the end 2023, to divert supply chains of strategic goods away from China. The G7 is made up of the United States, Britain France, Japan Italy Germany and Canada.

The finance chiefs' final communique, however, did not mention the U.S. proposal for narrow restrictions on investments to China. This could cause a rift within the group over how far they want to go with their pressure on Beijing.

An official from the Japanese Finance Ministry who refused to be identified because the subject was so sensitive, stated that the idea had been discussed in Niigata but did not elaborate.

China is a major market for many G7 nations, especially for those with economies that are export-dependent like Japan and Germany. Japan's total shipments are 22% China-bound.

Analysts say that Japan and the United States are trying to win over countries in the Global South by promising foreign direct investment (FDI) and aid.

Last year, U.S. president Joe Biden hosted a U.S. - Africa leaders summit in Washington. The goal was to strengthen alliances as China's presence on the continent grows.

Japan's Prime Minister Fumio Kishida visited Egypt, Ghana and Kenya this month.

In a statement released on Saturday, G7 Finance Chiefs stressed that it was urgent to address the debt vulnerability in low and middle income countries. They specifically mentioned Zambia, Ethiopia Ghana and Sri Lanka.

The report did not mention China but stated that foreign investment in critical infrastructure could "pose risks to economic sovereignty" and therefore "must not undermine the economic sovereignty of host countries."

Treasury Secretary Janet Yellen stated in March that Beijing’s lending activities had left developing countries “trapped in debt.” She added that Washington worked to counter China’s influence on international institutions and lending.

The Japanese Finance Ministry official stated that there were discussions about coercion at the G7 leaders' meeting.

According to a Reuters article, the G7 summit is likely to have a session dedicated to China. This will be to discuss Beijing's "economic pressure" on other countries.

AtsushiTakeda, chief economic researcher at Itochu Economic Research Institute, said that it is not easy for the G7 to fence the Global South. "These emerging countries won't be siding with the West or China while carefully weighing their interests," said Atsushi Takeda, chief economist at Itochu Economic Research Institute.