China and US debt woes may dominate G7 finance chiefs’ talks. This week’s Group of Seven (G7) financial executives will strive to diversify supply chains away from China and enlist Beijing’s help in fixing global debt concerns.

The G7 affluent democracies’ reliance on China, the world’s second-largest economy and the second-largest foreign holder of U.S. debt makes them vulnerable to opposing interests.

Starting Thursday, the three-day conference in Niigata, Japan, will be overshadowed by the rising danger of a U.S. government default, which may shake anxious financial markets after recent bank failures.

On Tuesday, U.S. President Joe Biden threatened to postpone his travel to Hiroshima for next week’s summit if the debt crisis is not handled. Treasury Secretary Janet Yellen will join the G7 financial leaders’ meetings.

“The dollar is regarded — and Treasury securities –as the bedrock safe asset in the entire global financial system,” Yellen said Monday, warning of the harm a default might bring to the U.S. economy and financial markets.

It’s trusted, and the safest asset, and failing to extend the debt ceiling would threaten the U.S. credit rating. So that’s a worry.”

Japan, this year’s G7 chair and the world’s largest U.S. debt holder, is concerned about the debt problem.

Japanese officials said this week’s G7 meeting would focus on strengthening the global financial system, preventing Russia from bypassing sanctions for its invasion of Ukraine, and global economic dangers such as stubbornly high inflation.

They said Japan wants a G7 unified statement following the summit.

China’s slowdown
As host, Japan has a lengthy list of other subjects that will leave policymakers little time to savor Niigata’s rice wine, many of which are related to China.

One is to agree on an ambitious declaration to diversify supply chains “away from countries like China” through collaborations with low- and middle-income nations.

Japanese Finance Minister Shunichi Suzuki invited Comoros, this year’s African Union presidency, to a Friday outreach meeting.

Five more countries—Brazil, India, and Indonesia, but not China—were invited to the outreach, focusing on rising nations’ debt issues.

Tokyo wants China to attend a creditor nations’ meeting it started to address Sri Lanka’s debt. Beijing observed the first round of discussions on Tuesday.

Last month, Yellen said China, the world’s largest official bilateral creditor, should help struggling nations with debt relief, but it has been a “roadblock” for too long.

With many emerging economies burdened by aggressive U.S. rate rises and dollar-denominated debt, it was unclear whether the G7 could persuade them to assist in constructing supply networks less dependent on China.

“The strong dollar is worsening emerging nation debt problems,” said Nomura Research Institute analyst Takahide Kiuchi.

“G7 talks show how politicized they are, with an emphasis on countering China.”

G7 central bankers will likely focus on inflation. This is because past excessive interest rate rises are slowing development and upsetting the financial sector in several of their economies.

Last month, the IMF cut its 2023 global growth projection and warned a catastrophic financial system crisis may cut production to near recessionary levels.

China’s imports fell substantially, and export growth slowed in April, shattering authorities’ optimism that a robust comeback in China’s economy would outweigh a global downturn.