China in the G7 communique

Alessandro Ponzetto | June 29th, 2022

Yesterday, the G7 released the communique where they list all the topics touched on at the Munich summit. The document itself is quite extensive, with 28 pages, but we will focus on the parts where China is mentioned. This is because we are seeing signs of change in attitude with Beijing, especially when it comes to certain aspects.

We will quote the relevant parts where China is mentioned, commenting on them along the way.

Global Economy and Finance

The first time China is mentioned is with regards to the global economy, and specifically the debt situation of various low-income countries. Quoting:

Given the deteriorating and highly challenging debt situations of many developing countries and emerging markets – with more than half of low-income countries in debt distress or at high risk of debt distress – we recognise the urgency of improving the multilateral frameworks for debt restructuring and to address debt vulnerabilities. We underscore our commitment to successfully implementing the G20 Common Framework for Debt Treatments beyond the Debt Service Suspension Initiative. We encourage further efforts to ensure an accelerated implementation of the G20 Common Framework and increased predictability. We call on all G20 partners to join us in this regard. We urge all relevant creditors, including non-Paris Club countries such as China, with large outstanding claims on low-income countries facing debt sustainability challenges, and private creditors in line with the comparability of treatment principle and mutual accountability to contribute constructively to the necessary debt treatments as requested. We reaffirm our commitment to promoting transparency across all debtors and creditors, including private creditors, for improved debt sustainability.

This is quite relevant, as we are seeing countries heavily exposed to China in distress. The main examples are Sri Lanka, Pakistan and Laos, all previously covered in our Macro dailies. It is however difficult to see how there could be any positive development on this front, and not only because of China.

While Beijing has indeed hamstrung entire countries with BRI (whether by intent or accident), Western countries and international institutions have hardly helped in this regard. Once again, the best example is how the IMF is dealing with Pakistan: as covered today, they are asking for several actions that would be political suicide for the current government, which is not already faring particularly well.

Foreign and Security Policy

Here is the bulk of the mentions of China, which shows the shifts in attitude (at least on certain aspects). In fact, this whole section is primarily dominated by China, despite the ongoing war in Russia being a major concern.

We reiterate the importance of maintaining a free and open Indo Pacific, which is inclusive and based on the rule of law. We re-emphasise our support for ASEAN unity and centrality and commit to explore concrete cooperation in line with the ASEAN Outlook on the Indo-Pacific. We remain seriously concerned about the situation in the East and South China Seas. We strongly oppose any unilateral attempts to change the status quo by force or coercion that increase tensions. We emphasise the universal and unified character of the United Nations Convention on the Law of the Sea (UNCLOS), and reaffirm UNCLOS’s important role in setting out the legal framework that governs all activities in the ocean and the seas. We stress that there is no legal basis for China’s expansive maritime claims in the South China Sea. In this regard, we urge China to fully comply with the arbitral award of 12 July 2016 and to respect navigational rights and freedoms enshrined in UNCLOS. We urge all parties to resolve disputes over maritime claims through peaceful means consistent with international law and support using the dispute settlement mechanisms established by UNCLOS. We underscore the importance of peace and stability across the Taiwan Strait and encourage a peaceful resolution of cross-Strait issues.

Here, the G7 immediately goes after the big issues that have put Beijing at odds with several countries in the region and beyond. As we have recently covered both the South China Sea and Taiwan, I will not go into great details here, referring to the more detailed pieces on the subjects. If interested, see ‘The Chinese drilling in the South China Sea’, ‘The Fourth Strait Crisis may be upon us’ and ‘Straits with Chinese Characteristics’ for more.

The TLDR version is this: the G7 is directly countering Chinese claims, at least verbally. In the case of the US and Japan, along with the UK to a lesser practical extent, actions are backing up these words, which leaves Europe in a limbo (as certain countries are economically dependent on China). A lot will depend on whether the European States will follow through with these words, but I would not hold my breath for that.

In the context of our cooperation with the largest economies, including in the framework of the G20, it is necessary to cooperate with China on shared global challenges, in particular addressing climate change and biodiversity loss and other relevant multilateral issues. We continue to call on China to uphold its obligations under international law and to contribute to international security. We remind China of the need to uphold the principle of the UN Charter on peaceful settlement of disputes and to abstain from threats, coercion, intimidation measures or use of force.

Here, there is still the hope of cooperating with China in issues such as climate change. However, as we have seen in Macro recently, China is currently more concerned about keeping their lights on than saving the planet. In fairness, the supposed Green-oriented Europeans are doing the same, as covered by Leo Nelissen in his European daily.

This could be seen as a stab at the Chinese behaviour in general, as Beijing did not shy away from threats, coercion or intimidation measures, but the following paragraph hints towards a focus on Russia.

As Russia is waging its unjustifiable, unprovoked and illegal war against Ukraine, we call on China to press Russia to immediately comply with the legally binding order of the International Court of Justice of 16 March 2022 and to abide by the relevant resolutions of the UN General Assembly and stop its military aggression – and immediately and unconditionally withdraw its troops from Ukraine.

This seems to be calling Beijing’s bluff, as on the one hand they repeatedly said they abide by the UN Charter while at the same becoming increasingly friendly towards Russia. This is unlikely to yield any particular result, at least not without some help from within the CCP.

After all, Russia and China are, for lack of a better term, the enemy of a common enemy (the US), but they are hardly natural friends. At the same time, the closeness to Moscow is slowly but surely starting to hurt Beijing, which may further empower the ‘resistance’ to Xi (in quotations, as we are still talking about powerful individuals within the CCP and not the average Chinese).

In this regard, it may become increasingly important to look at an influential figure who usually acts low key behind the scene: Wang Qishang, Vice President of China and quite an influential figure in his own right (he was instrumental in Xi’s anti-corruption campaign early on, as head of the CCDI during Xi’s first term).

Last time he was in the spotlight was during South Korean President Yoon’s inauguration, where he extended Xi’s invitation to visit Beijing, and he will visit the Philippines for Marcos Jr inauguration, where he may extend a similar invitation.

While not directly linked to Russia, the fact that Wang is becoming increasingly public (and in support of Xi’s efforts) does not bode well for the ones opposing the dear leader, and subsequently for a shift in Beijing’s stance on many matters (Russia included).

We call on China to honour its commitments made in the Sino-British Joint Declaration and the Basic Law, which enshrine rights, freedoms and a high degree of autonomy for Hong Kong.

On the matter, we will surely know more with Xi’s visit to the city, but it is unlikely a change to the current trend towards integration, as shown by the removal of any reference to Hong Kong being a British colony (among other pieces of evidence, this is merely the latest re-writing of history).

We remain committed to upholding fair and transparent competition in the global economy and strengthening international rules in this regard. With regard to China’s role in the global economy, we are continuing to consult on collective approaches, also beyond the G7, to challenges posed by non-market policies and practices which distort the global economy. We will build a shared understanding of China’s non-transparent and market-distorting interventions and other forms of economic and industrial directives. We will then work together to develop coordinated action to ensure a level playing field for our businesses and workers, to foster diversification and resilience to economic coercion, and to reduce strategic dependencies.

The last phrase in this paragraph is anathema to Beijing, as it is yet another hint towards the reassessment of economic links between the West and China. While the road will be long and bumpy, this trend seems to continue unabated, especially as actions from both sides continue to push in this particular direction (another example is Zero Covid, publicly praised by Xi himself).

We are gravely concerned about the human rights situation in China. We will continue to promote universal values, including by calling on China to respect universal human rights and fundamental freedoms, including in Tibet and in Xinjiang where forced labour is of major concern to us.

This is also another topic recently covered, in ‘Another potential case for decoupling: Xinjiang’. The question here is whether the Europeans will actually follow, especially Germany (the host of the G7 this year).

Conclusion

While all these excerpts hint at a potential shift in attitude, they may very well be mere words. After all, the first section is entirely dedicated to green policies, which is rather ironic given the resurgence of coal in many countries (including ‘green’ Germany).

Then again, China will most likely react to this, if their prior behaviour is of any indication (including how they reacted to the G7 last year). If this is indeed the case, the confrontational trend is sure to continue, with severe ramifications economically, given how the two are interconnected, and geopolitically, given the escalating terms (especially when it comes to Taiwan).