G20’s Discontent with China’s Economic Policies Irritates Japan, According to Reuters

By Pete Sweeney and Tetsushi Kajimoto

SHANGHAI/TOKYO – At a recent G20 meeting hosted in China, the nation successfully avoided criticism regarding its economic management and even received commendations for its transparency concerning the yuan. This outcome frustrated Japanese officials, who are advocating for further economic reforms from Beijing.

This situation starkly contrasts with a G20 finance gathering earlier in February in Shanghai, where Chinese policymakers faced scrutiny over fears of a potential yuan devaluation.

Despite the slowing growth of the world’s second-largest economy and the yuan’s decline to a 5-1/2 year low against the dollar over the past five months, G20 finance ministers and central bank governors seemed more focused on the ramifications of Britain’s decision to exit the European Union.

A European official remarked that "we have been very polite with China" during the meeting in Chengdu, expressing disappointment that Japan’s concerns about China’s economic performance weren’t sufficiently highlighted, as this poses a significant risk for Japan.

According to the official, "China’s growth problems and exchange rate decline have not been much of an issue here. Japan, with its concerns, has been left a bit alone, and no one wanted to join in."

Japan has struggled to gain support from other developed nations this year to address the appreciating yen, which has surged to a 2-1/2 year high against the dollar, even as its economy weakens and exports diminish.

A Japanese official stated, "Japan remains concerned about China’s economy, and we will urge the U.S. and Europe not to divert attention away from China," while acknowledging that Tokyo opted to remain silent on currency matters during the meeting.

Since the G20 meeting in February, the yuan has depreciated over 5 percent against a basket of currencies. Conversely, the yen has become both stronger and more volatile this year, witnessing a rise due to safe-haven buying amidst Japan’s efforts to combat deflation through negative interest rates.

Recent data indicated Japan’s struggles, revealing a 7.4 percent decrease in exports in June compared to the previous year, marking the ninth consecutive month of decline. The strengthening yen has hindered Japan’s export capabilities as China’s share of global trade expands.

During the G20 meeting, Japanese Finance Minister Taro Aso emphasized that Japan is closely monitoring the effect of the yuan’s decline and mentioned his agreement with U.S. Treasury Secretary Jack Lew on the necessity of structural reforms in China and currency market transparency.

In contrast to Japan’s concerns, the United States, a long-time critic of China’s currency policies, appeared content with China’s recent management of the yuan. Lew praised Beijing for its enhanced transparency and noted that the yuan’s fluctuations have been aligned with market factors. U.S. officials even acknowledged that China has intervened to prevent a rapid depreciation of the currency.

The G20 meeting occurred at a delicate moment for China-U.S. relations, coinciding with an international ruling that invalidated China’s expansive claims in the South China Sea. Additionally, it followed the nomination of Donald Trump as the Republican presidential candidate, who has stated his intentions to label China a currency manipulator if elected.

Sources from the G20 indicated that there was minimal discussion regarding China’s new cybersecurity regulations that are perceived to restrict foreign software companies from accessing the domestic market. There was also little advancement in opening protected sectors of China’s economy to foreign investments, although the final communiqué acknowledged concerns about protectionism.

However, the G20 did address issues related to industrial overcapacity, particularly in the steel sector. Many of China’s trade partners accuse the country of offloading surplus steel into international markets to mitigate potential layoffs in its state-run steel industry, which, in turn, threatens steel-related employment in other nations.