Hamish McRae: The balance of power is shifting

You could make a strong case that it is not in China's self-interest to become too close to the G8
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The Independent Online

There is, in case you have not yet noticed, another G8 summit coming up in Germany. You will notice, if only because substantial protests are being planned, that "Smash G8" placards have been written, that wire barricades are being erected and that police are primed. Let's hope that the protestors do heed Angela Merkel's call to avoid violence, but put it this way: the swanky Baltic resort of Heiligendamm, complete with its sumptuous hotels and naturist beach, would not be a great place to choose for a quiet getaway next week.

The razzmatazz, as so often, obscures the substance - which is that the world economy is currently experiencing a global boom, and more than this a boom that is more widely dispersed than any previous one in human history. It is a boom that is rewriting the world's economic power book.

As a result, the G8 - the US, Japan, Germany, the UK, France, Italy, Canada and Russia - no longer represent the world's most buoyant economies. Power is shifting towards the twin Asian giants of China and India, both of which are growing far faster than any G8 member, even including Russia; and to the energy exporters of the Middle East, and to some extent to Latin America. Yes, we - that is "we" the West - are still important in the sense that we have the position of incumbency. But we become a little less important with every passing year. When these economic summits were started by President Valéry Giscard d'Estaing at the chateau of Rambouillet near Paris in November 1975, the six countries that took part (Canada and Russia joined later) could think of themselves as making the key economic decisions for the world.

They declared that they were "determined to overcome high unemployment, continuing inflation and serious energy problems", and you could at least acknowledge that it was within their authority to have a stab at these. Now they make similar declarations, though with the balance swung away from unemployment and towards poverty in Africa and concerns about the environment. But the outcomes are not really within their control, even if they could agree on the policies, which they can't. What the "non-G8" world thinks and does is ultimately going to be more important.

That first economic summit was 32 years ago. Barring some global catastrophe that does not bear thinking about, in another 32 years' time in 2039, China will be on the brink of passing the US to become the world's largest economy. India will be indubitably the world's third largest. So if one is considering the policies that might best contain global warming in, say, 2050, the decisions by China and India over the next 30 years will be the key ones determining the outcome. So why aren't they in the G8 tent?

In one sense they are, in that they attend these meetings as observers, as do a number of other key countries including Brazil, South Africa, and Mexico. But they have made it clear that they are just that: they are not participating. Thus India's Environment Minister, Pradipto Ghosh, said last week that India would reject proposals put forward at the G8 to limit greenhouse gas emissions. "Legally mandated measures for reducing greenhouse gas emissions are likely to have significant adverse impacts on gross domestic product growth of developing countries, including India," he said. "This in turn will have serious implications for our poverty alleviation programmes ... this is not the path we wish to pursue."

As for China, it is already the world's third-largest trading nation, and its President, Hu Jintao, will be in Heiligendamm. But the Chinese have made it clear that they have not been asked to become a full member of the summit club and have pointedly said that since they have not been asked, they cannot give any answer as to whether they would like to join or not.

Indeed you could make a strong case that it is not in China's self-interest to become too close to the G8. It would have not much to gain and a certain amount to lose. It can, after all, play its global role on its own. Take investment in Africa, one of the G8's priorities. I saw a statistic last week that China's fund for investment in infrastructure in sub-Saharan Africa was nearly three times the size of the one agreed by the G8. China needs the US and the European markets to sell its goods. It also needs international investment. But these can be secured by bilateral agreement.

For example, if the price of market access to the US is allowing its currency to appreciate against the dollar as Congress demands, then it will gradually do so. The yuan is still officially pegged to the dollar but minor adjustments to its bands have allowed it to rise by 7 per cent over the past two years. China is also profoundly concerned about both the short-term impact of pollution on public health, as well as the long-term implications of climate change on its economy. It has a number of pioneering projects aimed at slowing the growth of carbon emissions. But it is not going to be told what to do by Angela Merkel.

There are a string of issues on the agenda at Heiligendamm but at their head is the one of the environment. At some stage the world will need to negotiate a new Kyoto agreement on carbon emissions and clearly countries such as China, India and Brazil will need to be party to this.

The present agreement, which is deeply unsatisfactory since it only covers the developed world, formally ends in 2012. It is in everyone's medium-term self-interest that is should be replaced with something more universal. It is in the interest of the new industrial giants because they are likely to suffer most from climate change. It is in the interest of the present developed world because it will be hard to sustain ever-tougher environmental measures if the effect of these is massively outweighed by increased emissions from the new developed world. So the geo-political bedrock for a deal is there. The market, too, will help a bit. Higher energy prices support conservation and a switch to cleaner technologies. But the lead has to come as much from the East as the West.

The headlines next week are going to be about the fissure between the positions of the US and the EU. Already the angry exchanges about the wording of the final communiqué are being leaked. Of course getting the US onside matters and it may be that we have to wait another 18 months for a new administration before much will move. We should however beware: a change in administration may change the rhetoric but it may not significantly change actual policy.

But rows between the US and Europe have a curiously antique feel to them. This is still the world of Rambouillet, when China was still four years from the start of its market reforms, India some 17 years from the start of its economic take-off, and the USSR had another 15 years to live. We need to have all the elephants in the big tent - and we need to pay attention to their views, their culture and their values.