Chen Weihua

China Daily (USA) - - IN DEPTH - Con­tact the writer at chen­wei­hua@chi­nadai­lyusa.com

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.

Growth, pro­tec­tion­ism

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.

In­ter­con­nec­tiv­ity

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.

Success

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.”

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