No time to lose to rebalance global economy

Updated September 8, 2010 21:04:05

Secrecy surrounds the latest high level economic and security talks between the US and China, which are underway in Beijing. Senior White House advisers have met with Chinese president Hu Jintao. President Hu has praised the progress made in the bilateral relationship since president Barack Obama took office - the two leaders have met six times, but there are still significant sources of tension. They include the usual friction over Tibet and arms sales to Taiwan. But observers say the economic front needs the most urgent attention.

Presenter: Karon Snowdon, finance correspondent
Speaker: Lawrence Greenwood, vice president, Asian Development Bank

SNOWDON: Both sides have taken an upbeat tone in the media photo appearances they have made during the three days of talks.

In greeting National Economic Council director Larry Summers and deputy national security adviser Thomas Donilon, China's president Hu Jintao kept his comments brief.

He noted the fresh progress made in China-US relations and said he was willing to work with the United States in promoting healthy and stable relations further, especially in trade and economics, energy, and environmental protection.

That's a lot to talk about when he meets with president Obama in Washington next year.

In the meantime, China and the US face calls to speed up the restructuring of their economies for the sake of the rest of the world.

GREENWOOD: Currently, the world economy is slowly recovering.

SNOWDON: Lawrence Greenwood is a vice president of the Asian Development Bank.

He says it's a race against time to rebalance the global economy before the US stimulus ends.

That means Asian nations, especially China, need to build in some resilience by boosting their domestic economies to rely less on exports, while the US needs to consume less and save more - and bring down its massive deficit.

GREENWOOD: That stimulus impact will eventually weaken and when it does we'll possibly see a weakening of Asian growth and a weakening of the Asian recovery. So, for recovery to be sustained there has to these reforms. And the question is can some of these initial reforms take place fast enough to create that domestic demand expansion before we see a weakening of the western economies as stimulus is withdrawn.

SNOWDON: And can it happen?

GREENWOOD: Yes, I think it's possible and it'll be a combination of quick reforms and including exchange rate movements, as well as some small stimulus, in particular in China. So, I think a combination of that quick reform and some stimulus can keep the recovery on track in Asia. But it does require a fair amount of political will to push forward those reforms.

SNOWDON: Larry Greenwood says China's exports to the US are currently higher than before the economic crisis. The US trade deficit is another source of tension.

He adds that on top of exchange rate reforms there is a need for more investment by South East Asia nations, a shift away from inefficient, polluting industries, and more regional integration.

And Australia has a role to play - as well as a lot to lose if things don't work out.

GREENWOOD: Because Australia - three quarters of its exports go to Asia - it's very much linked to the Asian economy. So, I think Australia should be pushing and encouraging its trading partners in the region to undergo these reforms to maintain that robust economic growth and also to keep pushing, as Australia has over many, many years, keep pushing regional integration and be a player there. Australia is in a wonderful position, it being a commodity exporter, it has a voice because of that. But it also has a voice because it's increasing its ODA, Overseas Development Assistance, and I think increasing faster than any other donor, at least any other traditional donor.

SNOWDON: Is the G20 the right forum to deal with this problem?

GREENWOOD: Really, we're talking about China, to a lesser degree Korea and some of the larger South East Asian countries, Indonesia is also a member of the G20. So, I think, in fact, that it's a very appropriate forum to have that discussion. It is taking place, of course, it is wrestling with this issue and will be coming out with some recommendations in Seoul later this year.

SNOWDON: The G20, which formed mostly out of the global financial crisis, will hold its next summit in South Korea in November.