Finding a way through — forging a consensus — on a strategy for global recovery after the financial crisis is the challenge that faces leaders in Seoul next week. Asia, and in particular, China with its current account surpluses and its huge international reserves is in the spotlight on this issue.

This week’s lead, from Yiping Huang in the next issue the East Asia Forum Quarterly (EAFQ) argues that the G20 should focus on structural reform in key countries in which imbalance is a problem. Currency adjustment should be an important part of the, but not the entire, policy solution.

‘The large Chinese current account surplus derives mainly from distortions in factor markets, which repress costs of production and artificially improve the competitiveness of China’s manufacturing exports. Exchange rate misalignment is only a part of the picture of distortions. Elimination of the current account surplus requires liberalisation of the factor markets. Relying exclusively on currency adjustment to correct external imbalances would require an out-sized appreciation, and that would be difficult for China to accommodate at this stage, both politically and economically.

‘Likewise, the exceedingly low savings rate in the US before the subprime crisis was caused by a number of factors. Simply depreciating the US dollar by a significant margin is unlikely to lift the savings rate materially. Such currency moves threaten to destabilise the economy and financial markets.’

EAFQ brings together contributions from across the Asia Pacific region to address some of the big questions that face Asia in the G20.

There are clearly Asian interests in the G20 although the region brings diverse perspectives and agendas to the global table, as it should. And how well the Asian members of the G20 can project broader regional interests and engage non-member support for those interests and agendas is another question. The legitimacy of the process will ultimately depend on getting the answer to that question right. But there is resolve in Asia to make the G20 work, since there is collective Asian interest that this global initiative succeed and continue and that encourages the G20’s Asian members to define a constructive agenda through which to contribute to the international public good.

The spotlight is on Korea as the first Asian and newly emerged country to host the G20.

The remarkable achievement of the G20 in helping to steer the global economy out of the worst of the financial crisis thus far has solidified its global role. But a lot of risks remain.

The global economy remains unbalanced, because there is imbalance within major economies. The way out is difficult and requires important structural adjustments at home for most countries. Asia can help to lead by example.

Asia can help the world by helping itself in advancing vigorous structural and financial reform, strengthening domestic safety nets, rebalancing growth and showing leadership and flexibility on policies that affect others, including on the exchange rates as well as by promoting global institutional reform, for example, within the IMF and WTO.