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January 18, 2006

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Expanding the G8: should China join?

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China’s rise in the world economy has echoes of historical episodes such as the industrial revolution, or the Meiji Restoration in Japan, in terms of its scope for disruption and impact on the global economic (and political) order. Since the Second World War, countries such as Japan and Korea achieved economic miracles but the relatively small size of their populations meant that the global impact, though noticeable in many sectors, was still relatively muted. Beijing plans to complete its modernisation programme by the middle of the 21st century, a process that has the potential to create seismic shifts in the world economy. To manage this phenomenon, China needs to be an integral part of global economic governance structures.

This pamphlet makes the case for China to be invited to join the G7 group of finance ministers and central bankers (the financial G7), while G8 membership should be offered on the basis of discernible movement towards liberal democratic norms and universal conceptions of human rights.

China is a central feature of the global economy in ways that have altered long-term economic relationships and have created new and dangerous global co-dependencies that is not being addressed comprehensively in any forum. These new imbalances are being felt in a wide range of sectors across the G8 economies, and are finding their expression in simmering trade quarrels and threats of protectionism.

With the increased role in global governance of the private sector, NGOs and non-state groups, no one organisation or system will solely preside over global governance in the 21st century. Some discussions can be handled outside the G7/G8 process, but in other cases where rapid response or high level decision making is critical, there are few substitutes to the G8. As the ‘informal steering committee’ for the major multilateral financial institutions and the world economy, the financial G7 has the power to deliver optimal cooperative outcomes. The most important instances of international economic cooperation in the last quarter century – most notably the Plaza and Louvre accords of the 1980s –occurred under the aegis of the then G7 group of the world’s leading economic powers. The world economy is now ripe for similar agreements to contain some of the severe imbalances plaguing it.

China has been present at many of the outreach sessions as well as meetings of the finance ministers of the G7. Virtually all the G8 countries in the past six years have floated the idea of incorporating China in the club in some capacity if not as a full member. At the Gleneagles Summit on 6-8 July in 2005, Prime Minister Tony Blair called for the enlargement of the G8 to include India and China, although he acknowledged that there would be resistance from within the club.

The biggest opposition will come from the United States and, to a lesser extent, Japan on the basis that China does not share the political values – namely open, democratic societies – that were enshrined in the original statement at Rambouillet on the founding of the G6 in 1975. But in the United States there has been a slight perceptible shift in policy towards China from calling for the ‘containment’ of China to urging it to become a ‘responsible stakeholder’ in the world economy.

The perspective of the Middle Kingdom towards the G8 has shifted in recent years. Recently, under the presidency of Hu Jintao, there has been a perceptible change towards the G8. Joining such an exclusive forum would give China global status, signalling that it has ‘arrived’ on the world stage.

In the meantime, China is rapidly expanding its (economic) sphere of influence in Asia in ways that will ultimately have great influence on how multilateral institutions such as the International Monetary Fund (IMF), World Bank and World Trade Organisation (WTO) as well as the G8 operate. New regional formations such as the East Asian Community which were inaugurated recently, are for the first time excluding the United States. Across Asia, the beginning of this millennium is witnessing an economically battered continent repair itself rapidly and join hands in a series of bilateral and regional economic alliances that have major but only yet thinly grasped implications for the G8; an Asian economic bloc that would have the financial and economic clout to match the United States or European Union. It is critical for the G8 to engage with this process early on, in order to ensure the smooth functioning of the global economy.

The resistance anticipated by Tony Blair to China’s incorporation in the club is clearly based on the lack of a clear road map towards a more participatory political system, China’s poor record on human rights, and virtual absence of the rule of law. While political reform is taking place in China, it is now as it was in the 1980s, focussed on strengthening the party to deliver economic reforms and so also its monopoly on power. There is no denying the slow and deliberate nature of change in the Chinese system. The political model that China appears to be moving towards is a form of societal co-optation or corporatism, analogous to political systems in other ‘soft’ authoritarian states in East Asia.

In the final analysis, it would be very difficult for the G8 to incorporate China in the near term into its ranks without a fundamental redefinition of its membership credentials. When the G6 was founded in 1975, the Communiqué Declaration of Rambouillet stated that ‘we came together because of shared beliefs and shared responsibilities. We are each responsible for the government of an open, democratic society, dedicated to individual liberty and social advancement.’

Paradoxically, while the G8 is of great symbolic importance, it is the G7 group of finance ministers and central bankers that wields influence over the global economy. Without early incorporation of China into the G7 finance group as a way-station to the G8, this powerful forum could find itself increasingly irrelevant in the economic landscape of the 21st century. The world would find itself in a perilous place with no forum to adequately govern an ever more interlinked and complex global economy.

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