China has rejected plans to use real exchange rates and currency reserves to measure global economic imbalances, casting doubt on the ability of Group of 20 major economic powers to reach agreement this weekend.
Speaking shortly before the start of the two-day meeting of finance ministers and central bankers in Paris, Chinese Finance Minister Xie Xuren also said the G20 should use trade figures rather than current account balances to assess economic distortions.
G20 countries, which together account for 85% of world economic output, are trying to agree on a set of measurements as a basis for economic policy guidelines to avoid a repeat of the 2008 global financial crisis. China's trade surplus has diminished of late.
'We think it is not appropriate to use real effective exchange rates and reserves,' Xie said at a meeting with Russian, Brazilian and Indian counterparts.
'Emerging markets, to deal with financial crises and economic shocks, need to set up a certain amount of reserves,' he said. The ministers agreed to induct South Africa as the fifth member of the BRICS group of major emerging economies.
The hardline Chinese stance highlighted splits over how to define economic imbalances and prescribe action to remedy distortions, although negotiators said several compromise proposals were under discussion.
The European Union's economic affairs commissioner, Olli Rehn, said the right indicators to tackle global imbalances included the current account, the real effective exchange rate and currency reserves as well as public and private debt.
Japanese Finance Minister Yoshihiko Noda said he was not sure there would be any agreement this weekend on a set of indicators, as G20 president France had hoped. Even if the yardsticks are agreed there is no sign of numerical targets even being broached.
France has already run into opposition with its two other G20 priorities - greater transparency and regulation of commodities prices and a reform of the international monetary system.
French Finance Minister Christine Lagarde said she hoped ministers would agree on a preliminary list of indicators in a two-step process leading by the end of the year to guidelines for unwinding imbalances.
With world shares near 30-month highs, investors seem content for the G20 to take its time, whereas at the height of the crisis two years ago markets were baying for policy action.
Central bankers differ at G20 debate
Differences over the causes of and ways to cure global economic imbalances were also on display at a public debate among the world's top central bankers today.
Bank of England Governor Mervyn King, reflecting the view of many Western policymakers, said the world risked protectionism or another financial crisis if policymakers failed to reduce currency distortions and other imbalances.
Chinese central bank governor Zhou Xiaochuan said Beijing would decide the pace of the appreciation of the yuan on its own and would not be swayed by pressure from other countries. Simply adjusting exchange rates would not influence Asians' savings behaviour, he said.
US and Japanese central bankers defended their easy money policies against criticism from some emerging countries that they were fuelling disorderly capital flows and commodity price spikes.
US Federal Reserve chairman Ben Bernanke said faster growth in emerging markets and 'the maintenance of undervalued currencies by some countries' had contributed to price rises and unsustainable patterns of global spending.
Bank of Japan Governor Masaaki Shirakawa acknowledged that loose monetary policy in the developed world was pushing capital into emerging economies and helping inflate commodities prices but said it was necessary nonetheless.
In a paper prepared for the two-day G20 meeting, the International Monetary Fund said euro zone debt tensions still posed a threat to global recovery, while fast-growing emerging nations risked overheating and surging food prices posed an inflationary risk.
The US quantitative easing could cause a destabilising flood of capital - the charge levelled by China and others - the IMF said, though it conceded this had not happened so far.
US Treasury Secretary Timothy Geithner has been urging China to let the yuan rise more swiftly, something Washington says is vital for balanced global growth. But People's Bank of China Governor Zhou said: 'External pressure has never been an important factor of consideration and we have never paid special attention to it.'
