China's shadow hangs over German G8 meeting

POTSDAM, Germany, May 19 (Reuters) The G8 powers predicted yet another year of healthy economic growth today at talks which exposed the limits of their clout in a world where China and others not in the club increasingly dictate the pace.

No-shows from the finance ministers of key members the United States and France compounded the limitations of talks to prepare a June summit of the G8 club of industrialised nations.

''Global growth remains robust and it is more balanced across regions and within our countries,'' the finance ministers said in a statement after their talks at a lakeside resort near Potsdam, southwest of Berlin. Risks to growth had receded, they added.

Beyond noting that world economic output is expected to rise by close to five per cent again in 2007, German Finance Minister Peer Steinbrueck had little to showcase after discussions that spanned hedge funds, African aid and climate change.

Steinbrueck, who several months ago proposed a G8 crackdown on the high-risk, high-reward hedge fund industry, acknowledged publicly that Britain and the United States wanted a lighter-handed approach than Berlin.

Though no deal was on the cards in coming months, his goal is still to have a code of conduct or guidelines the industry would follow to ensure adequate risk control and prevent events like the collapse of the LTCM fund in the late 1990s.

''Existing sound practices are not sufficient,'' he said.

The preference for a lighter touch was summed up by Canadian Finance Minister Jim Flaherty, whose country sided with Japan, Britain and the United States.

''There are really two different approaches here. One is the more direct regulatory approach that is advocated by some, but that's not the general view,'' Flaherty said.

A report commissioned by the finance ministers on the matter said hedge funds should pursue higher standards of business behaviour and supervisors strive for greater clarity on risk exposure in an industry estimated to be worth 1.6 trillion dollars.

The report, by the Zurich-based Financial Stability Forum, did not however explicitly recommend a code of conduct.

Hedge funds have multiplied the amount of assets under their management fivefold since 1999 and are less regulated than more mainstream investment funds, primarily because they cater mainly to the super-rich and and established financial institutions.

CHINA'S SHADOW Steinbrueck and the G8 ministers also came under fire for not delivering on pledges by G8 leaders in 2005 to boost aid to Africa on the back of major debt write offs.

''The G8 money men failed to turn around their broken promises to Africa,'' the Oxfam charity said in a statement which appealed to German Chancellor Angela Merkel to do better when she hosts a summit in Heiligendamm, Germany, on June 6-8.

China's increasing presence as a lender in the region also troubled the G8 ministers, who are worried that Beijing is too willing to lend money to African countries where they have just written off billions of dollars of unpaid debts.

Steinbrueck said the matter would be addressed later this year at meetings in South Africa of a wider club known as the G20, primarily because China was a member of that group.

''We can't proceeed on this (at the G8) if we don't have the other creditors (present),'' he said.

China's growing clout, and its absence from the G8, were also felt yesterday when the country's central bank announced plans to raise interest rates further in a bid to tame red-hot growth.

Several G8 ministers welcomed Beijing's announcement that it was also slightly releaxing the band of fluctuation within which it allows the yuan's exchange rate to ebb and flow versus other currencies.

But they said that they still wanted Beijing to go further in addressing their concerns that it keeps its currency artificially low.

US Treasury Secretary Henry Paulson stayed in Washington to prepare bilateral talks with China and the new French government sent no minister either.

REUTERS GT KP2210