April 17 (Bloomberg) -- Finance ministers from the Group of Seven industrial nations, meeting in Washington, may find that the week's most important international economic talks already took place -- without them.

As the ministers gather in Washington on April 21, they may catch a glimpse of Chinese President Hu Jintao's motorcade as he leaves town after his talks on currency policy with U.S. President George W. Bush. The G-7, meanwhile, remains stuck in a time warp, with a membership that fails to reflect current economic realities and may become increasingly irrelevant unless it changes, say a growing group of academics, economists and policy makers.

They say progress on such issues as reducing trade imbalances and limiting the rise of energy prices can't happen without China, the world's fourth-largest economy and holder of the biggest stash of foreign reserves, at the table. Some would add India, Brazil and Russia.

``The G-7 reflects a world that was, not the world that is or the world that is going to be,'' says Nigel Wicks, a former U.K. Treasury official who co-authored a 2004 report on the issue for the Centre for Economic Policy Research in London. ``You need to get the countries around the table that have the biggest influence on the global economy.''

The last time the group actually included the world's seven largest economies was 1994, when Nelson Mandela became president of South Africa, 18-year-old Tiger Woods won the U.S. amateur golf title and Walt Disney Co.'s ``The Lion King'' led the global box office.

China's Absence

The absence of China from the meetings will be particularly important, says Nicholas Lardy of the Institute for International Economics in Washington. He says China isn't likely to feel itself bound by discussions in which it doesn't have a voice.

``They are the biggest trading nation, they are one of the biggest receivers of capital flows,'' says Lardy. ``If you are going to be a global policy making organization and leave a huge player outside the framework, you aren't going to have much credibility.''

Time is short, says Johannes Linn, a researcher at the Washington-based Brookings Institution and former World Bank official. ``Keep China out much longer, and they may say, `It's not our game, why should we play by their rules?'''

Incorporating China into the G-7 would mean a lesser role for some of the current seven -- the U.S., Japan, Germany, the U.K., France, Italy and Canada. Some scenarios would drop Canada and create a single seat for the three members, Germany, France and Italy, that share the euro as their currency. Other proposals would expand the club, or make membership automatic for economies of a certain size.

Momentum for Change

``Anyone who is in now won't want to get out, so it's better to have an automatic process that also makes it more representative over time as countries grow,'' says Jim O'Neill, London-based chief global economist at Goldman Sachs Group Inc. ``Momentum is definitely building for change.''

The makeup of the G-7 hasn't changed since the 1980s. The members represented 62 percent of world output last year, down from 67 percent in 1999, according to International Monetary Fund figures.

In previous years, the G-7's influence helped ease the world off the Bretton Woods system of fixed exchange rates in the 1970s, adjusted currency values through the Louvre and Plaza accords in the 1980s and helped solve financial crises in Asia, Latin America and Russia in the 1990s. More recently, its clout has been dwindling: The seven failed, for example, in a two-year effort to reduce the price of petroleum.

`Obsolescence'

``The G-7 process was started at a time when major issues of global demand and policy coordination involved only the industrial countries,'' former U.S. Treasury Secretary Lawrence Summers said in a March 24 speech in Mumbai. Recent trends ``suggest the obsolescence of the G-7 as the dominant forum for international financial discussion,'' he said.

Not everyone thinks the organization needs an overhaul. John Taylor, former U.S. Treasury undersecretary for international affairs, says the G-7 is still ``a very useful group for getting things done,'' citing a crackdown on terrorist financing and more frequent meetings with ministers from other nations.

Ralph Goodale, former Canadian finance minister, says the G-7's current structure brings together important countries with similar political and economic systems in a forum small enough to avoid getting bogged down.

Working Dinner

Both Taylor and Goodale said China and the other big emerging markets get to express their views at G-20 meetings, which bring together finance ministers and central bankers from 20 jurisdictions ranging from the European Union to Saudi Arabia. The G-7 also in recent years has invited China, India, Brazil and South Africa to meetings, they said.

That tradition will continue this week when Treasury Secretary John Snow and the other G-7 representatives host a working dinner for counterparts from outside the group. Tony Fratto, Treasury spokesman, declined to name who else would attend the dinner because some invitees had yet to confirm their attendance.

Still, the current makeup leaves out two of the three most powerful engines of future global growth. China, the U.S. and India will account for half the increase in worldwide economic growth over the next 14 years, according to the London-based Economist Intelligence Unit.

Overtaking the U.K.

In 1995, China's output passed $700 billion, vaulting over Canada to become the world's seventh-largest economy. Last year, the Chinese economy soared to $2.26 trillion, overtaking the U.K.'s to become No. 4.

Some in the club are already talking about change. Bank of England Governor Mervyn King argued in February that ``membership of the top table must change with circumstance.'' European Central Bank Executive Board member Lorenzo Bini Smaghi said last month the G-7 is not ``sufficiently representative.''

U.S. Treasury Undersecretary Tim Adams, who last year called for putting the group on a ``glide path'' to reform, said in an interview that countries such as China and India need to be ``part of the conversation.''

``That will require a decision at some point by all those involved,'' Adams says. ``It's not on the near-term docket.''

Goldman Sachs and the London-based CEPR advocate that the G-7 be reduced to between four and six members. Each would keep the U.S. and Japan, and promote China.

Losing Membership

The 12 euro countries should have a single representative, instead of separate memberships for France, Italy and Germany, says Charles Wyplosz, who co-authored the CEPR report with Wicks. The U.K. and Canadian memberships might also be at risk.

``Some countries are less important to the international economy than they once were,'' says Wyplosz, director of the Geneva-based International Centre for Monetary and Banking Studies.

To avoid diplomatic spats over membership, O'Neill said countries should move in and out based on a pre-determined share of the global economy. That would ultimately benefit emerging markets such as India, Brazil and Russia, he said.

Increasing the size of the global economic forum is a better idea, says C. Fred Bergsten, a former U.S. Treasury official who now directs the Institute for International Economics. He proposes a 16-member group with representatives from every region and income level.

That would hand membership to countries such as China, Russia, Indonesia, India, Mexico, Brazil and Saudi Arabia. ``Its members would have the competence to address every major issue facing the world economy,'' says Bergsten. ``It would offer a more promising basis for steering the world economy.''

To contact the reporters on this story: Simon Kennedy in Paris at skennedy4@bloomberg.net Kevin Carmichael in Washington at kcarmichael@bloomberg.net

Last Updated: April 17, 2006 13:47 EDT