The East China city of Hangzhou has long been known among Chinese as the paradise on Earth. Its image has been burnished this year in preparation for the G20 Summit.
However, when leaders descend on the scenic city for the Sept 4-5 summit, they are faced with the daunting challenges of a slowing global economy, rising protectionism and benefits not equally shared by many poor countries. Experts believe that while the attendees may agree on many necessary measures to take, actually taking such actions might be far more challenging subject.
The IMF has decreased its projection for 2016 global growth from 3.8 percent to 3.1 percent. G20 members – there are actually 19 of them and the European Union – now account for 85 percent of the global economy, 80 percent of the global trade and nearly two-thirds of the world’s population.
IMF Managing Director Christine Lagarde said on Thursday that low growth, high inequality, and slow progress on structural reforms are among the key issues that G20 leaders will discuss at their meeting this weekend.
“This meeting comes at an important moment for the global economy. The political pendulum threatens to swing against economic openness, and without forceful policy actions, the world could suffer from disappointing growth for a long time,” she said.
Fiscal, monetary and structural reforms have been regarded as some of the major tools to boost growth. The G20 finance ministers and central bank governors meeting in Chengdu in July vowed to use all tools to boost growth.
David Dollar, a senior fellow at the John L. Thornton China Center of the Brookings in Washington, believes China, as the chair this year, is in the enviable position of having solid growth. While China’s economy has slowed down, it is still growing above 6 percent, second only to India among major economies.
Dollar, a former World Bank official, expressed the need for China to deal with the many “zombie’’ State-owned enterprises that are adding risks to the Chinese economy, and the relatively closed service sector and the problem of excess capacity.
He also pointed out that the US could help short-term and long-term growth with greater infrastructure investment, immigration reform and new trade and investment agreements.
Both Republican and Democratic presidential candidates Donald Trump and Hillary Clinton have promised huge infrastructure investment to meet the public outcry.
Yukon Huang, senior associate of the Asia program at the Carnegie Endowment for International Peace, believes that China has the strength in infrastructure, clearly referring to the many roads, bridges and highspeed rails China has built not just in its own country, but in other countries, in particular Africa.
He said China and the US could move forward on a joint infrastructure program to allow foreign investment financing, something that Huang believes links to both short-term and long-term goals.
Huang disagreed with some pessimistic views about the Chinese economy, saying that China’s economic problems are no worse than other economies while China’s potential to tackle those challenges is far greater.
Matthew Goodman, a senior adviser for Asian economy at the Center for Strategic and International Studies, noted that countries agree on the need for structural reform, such as infrastructure investment, to fix their economies. “But it’s very difficult politically and it’s really domestically,” he said of the domestic politics in each country.
On Tuesday, Chinese President Xi Jinping urged meaningful efforts to push forward the country’s planned reform agenda that is more marketbased and environmentally sustainable. His latest words are believed to send a clear signal to the world leaders that China is committed to reforms.
In the US, protectionism has run strong. Both Trump and Clinton oppose the Trans-Pacific Partnership (TPP) trade agreement, something President Barack Obama desperately wants to leave as part of his presidential legacy.
But Huang said the economic benefits of TPP are modest without the participation of China. That is why US leaders have to rely on a geopolitical argument to sell TPP.
US Secretary of Treasury Jack Lew indicated on Wednesday that Obama will talk about TPP at the G20 in Hangzhou. Huang suggested that the US should signal to China that it welcomes China to become a member of TPP.
“The West is becoming more protectionist. China favors open market,” said Huang, an economist once serving in the World Bank.
He also believes China always focuses on the long term because its political system encourages more longterm thinking where the political system in the West is very short-term oriented. “So that’s a conflict,” he said.
Christine Lagarde, IMF managing director
The theme of this year’s G20, proposed by China, has been “towards an innovative, invigorated, interconnected and inclusive world economy.”
Huang said that China, which prioritizes innovation in its national strategy, believe its innovative approach will benefit the rest of the world. But he noted that while all G20 members favor more innovative societies, he believes this could be better and more smoothly achieved if China can conclude a Bilateral Investment Treaty (BIT) with the US and Europe.
Huang applauds China’s One Belt One Road and Asian Infrastructure Investment Bank (AIIB) initiatives as significant for improving the connectivity by building infrastructure. He believes that China could garner far more support by doing a better job explaining to people in other countries the benefits they will have from the initiatives.
The AIIB, whose members include most major European economies, got a shot in the arm when Canadian Prime Minister Justin Trudeau’s government on Wednesday announced that Canada is applying to join the bank.
Goodman of CSIS believes the four “i” has particular meanings, saying that innovation is important to China and China is committed to a stronger growth story and wants to highlight infrastructure and trade connectivity.
But he said inclusiveness is probably most important for China because it will demonstrate that China is a world leader, in particular of the developing world.
Cheng Li, director of the Thornton China Center, said it is not about one country replacing another, but, rather, the collective leadership in global governance. He said that China can play an important role in such issues as poverty reduction and helping ensure financial stability and governance.
Barry Carin, a senior fellow of Center for International Governance Innovation, based in Waterloo, Canada, said leadership will not come from an inward-looking and the politically stalemated US or from the EU consumed by the Brexit, the Euro crisis and the flood of refugees. “The only hope is that China, exploiting its ingenuity, can provide the necessary leadership,” he said.
Carin said that China appears to be very careful and discrete in exercising leadership. “The One Belt One Road and AIIB are good examples of a measured approach to leadership,” he said.
China has put the implementation of the 2030 Agenda for Sustainable Development approved by world leaders at the UN last September on the top of the agenda of the G20. Foreign Minister Wang Yi said on Aug 26 that China will call for the G20 to formulate action plans for implementing the agenda.
He also promised that China will set an example by completing its domestic legal procedures for the ratification of the Paris Agreement before the G20 Summit.
Cooperation on fighting climate change has been a highlight of cooperation between China and the US in recent years. It is regarded as paving the way for reaching the Paris Agreement approved by more than 190 countries last December. White House senior adviser Brain Deese described the accord as an “executive agreement” and indicated that Obama may use his executive power to ratify the Paris Agreement without a vote in the Senate.
China chairing the G20 Summit is an important signal of change in the world economy, with emerging markets led by China playing a more important role, according to David Dollar of Brookings.
“I expect China to continue to be a positive voice pushing for reform to the governance of the IMF and other institutions so that they better reflect today’s reality,” he said.
While the G20 summits have not made any major breakthrough in the past years, Chinese Foreign Minister Wang Yi said in early August that there will be nearly 30 deliverable outcomes at the Hangzhou summit, making it one of the most fruitful summits in G20 history.
Writing on the Brookings website, Cheng Li and his colleague Zachary Balin believe the Hangzhou summit is an opportunity for China to project to leaders of G20 members and to the world that it takes global governance seriously and that its organizing and convening capacities are second to none.
China has impressed the world with the 2008 Beijing Olympics and 2010 Shanghai World Expo. And more than 1 million volunteers have signed up to help with the G20 Hangzhou.
“The world already knows China’s talents as a planner, and the Hangzhou summit appears likely to extend that impressive legacy,” wrote Li and Balin.
But they warned that organization is merely a starting point when it comes to global governance given that world leaders coming to the summit have diverse national interests and domestic politics. “China’s critical test lies in whether or not it can direct that energy to productive ends,” they said.
The first G20 Summit meeting was held in Washington in November 2008 when George W. Bush was president. What was accomplished at the 10 previous summit meetings leading to number 11 on Sept 4-5 in Hangzhou?
Over the years, G20 summits have reached consensus to stimulate global growth in 2009, fight protectionism, reform the World Bank and IMF governance and quota system and coordinate in exchange rate policy.
Matthew Goodman, senior adviser for Asian economics at the Center for Strategic and International Studies, points to three broad accomplishments of G20 over the years.
One: It has set an agenda for global economic cooperation. “And that’s important for trying to talk about these issues of growth, financial stability, tax reform,” said Goodman, a former director for international economics on the White House National Security Council, who has helped US officials prepare for G20 and G8 summits.
Two: G20 has solved problems, starting with intervening to prevent a deep and lasting crisis in the global economy and financial system, according to Goodman, referring to the 2008-2009 global financial crisis and citing G20 efforts to advance trade agenda and crack down on tax evasion.
Three: It has helped to build habits of cooperation by bringing together countries representing a very diverse group of economies, large and small, to talk about common interest and common challenges, according to Goodman.
“And that’s a big deal. I mean, it’s something that doesn’t happen very often, and so I think the G20 as a group can take credit,” he said.
However, not everyone agrees. Barry Carin, senior fellow of Center for International Governance Innovation, based in Waterloo, Canada, acknowledged that there is no alternative to the G20 for effective global crisis management, but he said the G20 risks evolving into irrelevance, describing its record for the past five years as “discouraging.”
“Hangzhou is perhaps the best hope for rescuing the G20 as a respected and effective global steering committee,” said Carin, whose recent research has focused on G20, in particular the G20 Summit in Hangzhou.
This meeting comes at an important moment for the global economy. The political pendulum threatens to swing against economic openness, and without forceful policy actions, the world could suffer from disappointing growth for a long time.”