Source: gbtimes.com (Finland)    Published: 2015-11-16

 

Hu Yuwei, a research fellow at RDCY, was interviewed by gbtimes.com, Finland.

 

 

A print portrait of the G20 leaders in Hangzhou, China. (Photo: Baoxin Guo, China Daily)

 

In December, China will for the first time take over the presidency of the G20, culminating in a leaders’ summit to be held in Hangzhou in late 2016.

The agenda for the G20, a group of the world’s largest economies including the United States, China, India, Russia and major EU members, has been expanding ever since the global financial crisis of 2008-09 when it emerged as the principal forum for dealing with global economic and financial issues.

Hopes are building that China can use its presidency to bring new life to discussions on new sources of growth, such as structural reforms and infrastructure investments, and the reform of the global financial system, including the International Monetary Fund (IMF).

“The world has high expectations for China`s G20 presidency. It provides China with an opportunity to increase its profile in global economic leadership,” says Hongying Wang, a senior fellow at the Centre for International Governance Innovation (CIGI), an independent think tank based in Canada.

“High expectations also increase the likelihood of disappointment. For those hoping for the G20 to expand beyond financial and economic governance to tackle broader issues such as the international refugee crisis, China`s presidency may fall short.”

The G20 presidency in itself will be important for China, given the sense of ownership it feels about the group. Unlike the IMF, the World Bank and the World Trade Organisation which were initially created by Western countries after the World War II, China joined the G20 as a founding member and sees it as the most important international forum for global economic governance.

“I think China will use its presidency to strengthen the G20 because it is a forum that has given China more weight in international economic governance,” says Wang, adding that China may encourage the creation of a permanent secretariat for the G20, which relies on peer review and international organisations, such as the OECD, to prepare and implement many of its decisions.

As the chair of the G20, China can greatly influence the group’s agenda. But to deliver a successful presidency China will need to lay aside its own immediate interests and work together with others to overcome hurdles created by an anaemic global economy, US domestic politics during its election year, and the emergence of new rival trade blocs and governance institutions.

 

New sources of growth

China’s G20 presidency comes as economic growth in China and other emerging countries is slowing while the United States and Europe are seeing modest recovery at best. The sluggish and uneven global growth will make it more difficult for China to inject momentum to the agenda it inherits from previous years. A major promise made by the G20 countries in 2014 to collectively grow their economies by two percent by 2018 is in particular at risk of failure.

Economic growth will be the top priority during China’s G20 presidency, says Hu Yuwei, a research fellow at the Chongyang Institute for Financial Studies (RDCY) of Renmin University of China.

“Since the global financial crisis, many countries, including advanced and emerging economies, relied on temporary fiscal and monetary policies to stimulate demand,” says Hu. “We are now at a crucial moment where all countries need to pay more attention to structural reforms in order to ensure that economic growth is more sustainable, more balanced and more robust in the long run.”

In the absence of effective quick remedies, countries are now forced to look for new sources of growth that can boost productivity and innovation.

“China should use the G20 presidency to push for a better alignment of the major economies’ strategies with the G20 agenda, and including its own strategy,” says Ye Yu, an associate professor and assistant director of the Institute for World Economy at Shanghai Institutes for International Studies (SIIS).

China itself is urgently looking for new sources of growth – domestic consumption, services and technological innovation in place of cheap exports and heavy investments – as its economic growth has slowed to less than 7 percent, the slowest pace since the financial crisis. A new five-year plan seeking to turn China into a “moderately prosperous society” by 2020 will be finalised during its G20 presidency.

According to UNESCO, China`s research and development investment spending is now the second highest in the world.

“Innovation is a big topic in China under the current leadership”, says Hu Yuwei from RDCY. “I think China will use the opportunity to promote innovation, to learn abilities from other countries and share with the international community what China has done on the topic.”

Chinese expertise in infrastructure means this will also feature prominently on the G20 agenda next year. With its Belt and Road Initiative, China is building a new Silk Road to boost trade and connectivity from Asia to Europe and Africa. Earlier this year China also established the Asian Infrastructure Investment Bank (AIIB), a new multilateral development bank alongside the US-led World Bank and the Japanese-dominated Asian Development Bank.

But while China can demonstrate leadership in some issues, Ye Yu of SIIS says it is important for China’s initiatives to strike a balance between its own “self-interest and the global public good”.

“China should take advantage of its own strengths; where it can do best, such as the infrastructure investments, its own experience may contribute something to the global agenda.”

 

IMF reform and the US presidential elections

Another major issue on the table will be the fact that while China, India and other emerging economies place much importance to the G20, they remain under-presented compared to their economic weight in traditional institutions, especially the IMF.

“China will likely use the G20 presidency to reinvigorate the reform of the global financial system, which has been slow-moving and even backsliding in recent years,” says Hongying Wang of CIGI.

In what would be a major step in diversifying the international reserve currencies, the IMF is expected to decide this month whether to include the Chinese currency, the renminbi, into the basket of global reserve currencies alongside the US dollar, the euro, the yen and sterling.

But the much-awaited implementation of a reform package for shifting 6% of voting power in the IMF in favour of China, India and other emerging and developing countries looks more uncertain. IMF quota reform was agreed in 2010 by the United States and other G20 governments but remains blocked by the US Congress.

Because of US presidential elections towards the end of 2016, progress on the IMF quota reform may be out of China’s control.

“The international financial institutions working group will be revived next year to discuss the IMF reform. But I don’t think in the election year China can have any strength or advantage, it’s US domestic politics that will prevail on this issue, as always,” says Ye Yu of SIIS.

Another development that the G20 will need to face, and not just during China’s presidency, is the emergence of new regional trade blocs and governance institutions that could rival each other.

Whereas the lack of progress in giving more say to the emerging economies has in part led the establishment of the Chinese-led AIIB and the BRICS countries’ New Development Bank, the United States has, for its part, sidestepped the deadlock at WTO’s Doha negotiations with its Trans-Pacific Partnership (TPP) and Transatlantic Trade and Investment Partnership initiatives.

After years of negotiations, the United States, Japan and 10 other Pacific Rim countries in October reached an agreement on the TPP to create the largest free trade area in history. The pact excludes China, which has been negotiating its own free trade agreement named the Regional Comprehensive Economic Partnership (RCEP).

Although both China and the United States have downplayed notions of rivalry between their trade and development funding initiatives, potential conflicts will need to managed, and this is something that the G20 could be suited for.

“The emergence of regional and mega-regional agreements poses a challenge for global level cooperation. The G20 is a good platform for countries to seek compatibility between different agreements and coordination among the various blocs,“ says Hongying Wang of CIGI.

 

Leadership counts

China’s G20 presidency is one of the most anticipated in years, as it will provide clues to what Chinese leaders think about global economic governance and the international responsibilities the country is willing take.

Whether it comes to new sources of growth, infrastructure development or managing rival trade blocs, China can be expected to promote and seek support for its own initiatives, such as the Belt and Road Initiative and the AIIB, which may be a concern for some of the G20 countries.

“China should find a balance between consistency and innovation regarding the G20 agenda. It should respect the existing structure; it’s not China’s own project but a global project it is chairing,” says Ye Yu of SIIS. “So it’s about innovating new solutions while keeping the original agenda issues.”

Hu Yuwei from RDCY acknowledges that from a purely Chinese perspective, having the endorsement of the international community for Chinese-oriented initiatives is important. But the first priority for a successful G20 presidency will be to move with other countries towards the implementation of existing goals, such as the target to raise their collective GDP by 2018.

“Hopefully China can make all the countries to really implement their great reforms, so that the global economy can really pick up, which will benefit everyone.”