Agence France Presse

Shanghai, February 2:

A key focus of the upcoming G7 meeting in London will be invited guest China, with finance ministers eager to hear how Beijing plans to solve some of the nagging doubts about its economy, analysts say.

China, the newest economic powerhouse, is a rising force that some analysts predict will overtake Japan, the European Union and even the United States within two decades.

The world’s most populous country has averaged stunning 9.4 per cent growth from 1979 to 2003, helping lift more than 400 million Chinese out of poverty as market-based reforms have driven its formidable transformation. After notching up 9.5 per cent growth last year, up from a revised 9.3 per cent in 2003, China’s economic czars again face the somewhat enviable

problem of making sure the $1.65-trillion economy does not grow too fast.

Last year, China managed to allay some of the serious concerns about its economy overheating as it reined in easy credit that was fuelling a production boom and causing prices to rise. “The world is focused on whether Chinas economic growth can be sustained, will it

be good quality growth, or whether the economy will spin into a deflationary crisis,” Li Ruoyu, economist at the State Information Centre, a government think-tank, told AFP.

“China is becoming stronger, its position in the world is rising,” said Li. The G7 invitation to meetings in London on Friday and Saturday reflect China’s growing economic clout but also concerns about how it will further integrate an economy that is still protected by the state.

Central to the debate is China’s currency. The yuan has been fixed since 1994 at around 8.28 to the dollar after a devaluation of about 50 per cent that year, a move which in no small part fuelled the astonishing export-led growth of the country.

It has also increasingly aggrieved its trade partners, especially the United States, who argue that the yuan is now being kept artificially low to make exports cheaper and imports more expensive.

The United States record $148 billion trade deficit with China in January to November

last year has only lent weight to Washington’s argument.

Although central bank governor Zhou Xiaochuan and Minister of Finance Jin Renqing are not

expected to make any promises at the G7 meeting, China will have to take action sooner rather that later if it is to control speculation pressuring its currency, analysts said.

For the G7 nations — Britain, Canada, France, Germany, Italy, Japan and the US — the yuan’s valuation revolves around the larger, more complex demands of ensuring that China plays by the rules it promised to adhere to when it joined the WTO in 2001.