G20 Hangzhou Summit Priorities Crucial to Global Governance
China’s accession to the Presidency of the G20 in 2016 marked an important symbolic shift: It is the first time a major non-Western power has chaired the world’s leadingforum for international cooperation. But it also comes at a difficult and uncertain time for the world economy and political environment. In June the World Bank cut its forecast for the global economy in 2016 from 2.9% to 2.4%. As we head toward a decade after the global financial crisis of 2008 hit, the world is in danger of becoming stuck in pattern of low growth. Traditional policies such as monetary easing no longer seem to be working despite ultra-low interests in many countries. Almost everywhere income inequality is rising, leading to the rise of protectionist sentiments, evident in the Brexit vote for the United Kingdom to exit the European Union, the campaign rhetoric of US Republican candidate Donald Trump, and the rise of nationalist political parties in the developed world, all of which threaten the global trading system. The World Trade Organization (WTO) trade monitoring report this year found that the application of new trade-restrictive measures by G20 economies was on the increase, reaching the highest level since the WTO began collecting these data in 2009. Political tensions and terrorism are also on the rise in many parts of the world. With all these problems there are high expectations that the 2016 G20 Hangzhou Summit agree practical steps that will make progress towards the Chinese G20 Presidency’s core G20 theme of “Towards an Innovative, Invigorated, Interconnected and Inclusive World Economy”. The four key priorities for achieving this goal are “breaking a new path for growth”, “more effective and efficient global economic and financial governance”, “robust international trade and investment”, and “inclusive and interconnected development”.This theme and the priorities China proposed have received strong endorsement and support from the other G20 members.
The first priority, “breaking a new path for growth”looks for ways to revive the still-sluggish growth in the world economy in the face the rapid aging of societies that has already hit Japan and Russia, beginning in Europe led by Germany, and soon to become a problem in China, to generate new sources growth that do not depend on a growing population.Many governments are still wary of worsening their budget deficits, so China’s emphasis is to centre on encouraging increased G20 investment in global infrastructure. China is also focusing G20 efforts on on advancing reform and innovation and creating and seizing new opportunities, especially by removing barriers to the rapid rollout of new technologies. Progress has already been made here. At the Meeting of the G20 Agricultural Chief Scientists (MACS) in Xi’an earlier this year, for example, set up a group to encourage cooperation in new agricultural technologies by establishing a set of global research collaboration platforms to share technologies, knowledge and innovative research. China can also gain credibility and cement its leadership in opening up a new path for growth by setting a good example with its own structural, “supply-side” reforms. In June, for example, the State Council, announced that certain sectors, including telecommunications, airports as well as oil and gas exploration, would be further liberalized.
At the core of the second priority, “more effective and efficient global economic and financial governance”, is increasing the representation and voice of emerging markets and developing countries in global economics forums and institutions to better reflect the realities of our 21st Century, multipolar world that is still too dominated by countries who established this system after World War II. In pursuit of this aim, China invited Laos, as the ASEAN Chair; Chad, which holds Presidency of the African Union; Senegal, which holds the Presidency of the New Partnership for Africa’s Development; and other two other representatives of developing countries, Kazakhstan and Egypt, to attend the Hangzhou G20 Summit. In the area of global financial governance, ways to strengthen the role of the International Monetary Fund’s (IMF) reserve-currency unit, Special Drawing Rights or SDRs which incorporated the China’s Yuan this earlier year, and move to price more commodities in SDRs, were all on the agenda. Establishing the SDR as the leading global reserve currency would have many benefits. It would a broader range of countries to enjoy the profits associated with creating global money. The IMF could finance its programmes by creating SDRs, bypassing the tortuous negotiations required to secure credits or raise member quotas in the current system. SDRs could also be used to support development by, for example, allocatinga larger proportion of them in to developing countries in need of foreign-exchange reserves. China also sought to make progress on IMF quota and governance reform, furthering the 15th General Review of Quotas that is already under way.
In the third area of “robust international trade and investment” the Hangzhou Summit focused on addressing the huge “global infrastructure gap”. McKinsey Global Institute estimates that the world needs more than US$3 trillion investment in infrastructure per year through 2020 if it is to maintain its historic growth rates. The G20 has already established a new international body, the Global Infrastructure Hub (GIH) to implement its multi-year global investment agenda. With the GIH now fully operational, the Hangzhou Summit can build on this foundationto develop new processes to improve and speed up project selection and preparation by governments and attract private capital by establishing mechanisms to better share data, build local capabilities, and match bankable projects to private sector partners. These initiatives can also be coordinated with the work of the Asian Infrastructure Investment Bank (AIIB), set up by China and headquartered in Beijing which now has 50 countries as members, the “one belt, one road” initiative, supported by finance from the Silk Road Fund (US$40 billion), the New Development “BRICS” Bank (US$30 billion), the ASEAN Infrastructure Connectivity Fund (US$20 billion) and existing funding from the China Development Bank. Historically, the G20 has played a more limited role in trade policy. But with the World Trade Organization (WTO) seemingly in deadlock we can expect China to push for the G20’s Hangzhou Summitto support free trade agreements as a way to stimulate global demand.
Those initiatives tie in with the final priority area for the Hangzhou summit: “inclusive and interconnected development”. This is itself a huge agenda, but the G20 toneeds to achieve progress on reforming global energy governance if the commitments agreed at the 2015 United Nations Climate Change Conferencein Paris are to be achieved. We can expect pressure for the G20 to agree to phase out fossil fuel subsidies, remove barriers to energy access, encourage efficiency, and increase the transfer of green technology from advanced to developing nations.
Professor of International Management
Judge Business School, University of Cambridge