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China, G20 and Global Governance

2015/11/18

(Mr. Li Baodong, Vice Foreign Minister and Chinese G20 Sherpa
The World Newspaper,November 13,2015, Turkey)

The G20 Antalya Summit is drawing near. The leaders of major economies will be gathered again to determine their collective actions towards inclusive and robust growth.

As a main platform on international economic governance, G20 has framed the world's efforts to restore economic and financial stability since its inception in 1998. By standards of historians, 17 years is like the moment it takes for a galloping horse to cross a crack in the ground, as the Chinese metaphor describes. Nevertheless, 17 years are long enough for some tectonic shifts to take place in this world. Change, is one of the most important and surest facts of life we have to live and deal with in public policy, be it international or domestic.

The first of those are changes in the world economy.

In that respect, the picture is seemingly mixed at this moment.

The good news is that with growth firming in most of the major developed countries, the world economy as a whole may finally be out of the woods.

There is also a downside, however. Fragility still persist and divergence is growing between countries in both performance and policy stance and priorities.

Lately, there has been some intense interest in the state of the Chinese economy, which comes as no surprise, since Chinese economy has taken the second place globally.

We have become a victim of our own success. Multi-year double-digit growth has helped to form unrealistic or in some cases, even distorted expectations. To put things in perspective, China's growth easing as the economy expands is not out of line with the development trajectory of other countries. For an economy of China's size, growth around 7% is still quite significant, either in absolute terms or as a proportion of global growth. More importantly, lowering the speed of growth, albeit painful sometimes, will create space for structural reform and adjustment that leads towards better quality and greater sustainability for growth over the long run.

The second set of changes relate to international economic cooperation.

The G20 summit process started off as a crisis response and management platform. Measured against that mission, its efficacy has proved remarkable. The prospect of a global meltdown focused minds and galvanized actions that would otherwise have been impossible. Through macro-economic policy coordination, the major developed and emerging market economies of the world succeeded in containing the crisis, and later improved crisis preparedness through financial sector and international architecture reforms. G20 cooperation also helped to engineer a gradual recovery.

As the crisis is put behind us, the sense of urgency is, honestly, no longer what it used to be. There is even a real risk of cooperation or reform fatigue and of complacency. One clear indication is the lack of progress in implementing the 2010 IMF quota and governance reform package.

We have to realize that in spite of the progress made, prevention of future crisis is far from assured. And no crystal ball can tell us when, where or how the next crisis will occur. We must not allow a false sense of security to lull us into business as usual and wait for the next crisis to happen. What we can and should do is to learn our lessons and keep our powders ample and dry, to minimize the chances of another crisis and be prepared once it hits again. In this respect, it is certainly counterproductive to erode the hard-won spirit of partnership and undercut its effectiveness by shortchanging about 50% of the global economy and continuing to allow institutional setup for global economic governance to lag behind or increasingly disconnect from realities.

Beyond G20, a lot is going on, turning 2015 into potentially another major milestone for international economic cooperation.

On development, world leader have reached agreement in New York on 2030 Sustainable Development Agenda. The next and bigger challenge is to make sure that promised actions will materialize in the next 15years, and that the agreed goals will be met in time.

On trade, all eyes are on the MC10 in Nairobi towards the end of the year to see how it will tackle the challenge that anaemic progress on Doha Development Round and a persistent surge in RTAs have coalesced to pose to the Multilateral Trading System.

On climate change, COP21 stands a real chance of seizing the window of opportunity opened up by more positive and proactive stances on the part of major players, although significant challenges remain on the road to Paris.

The third and final set of changes are related to G20 itself.

As a one-of-a-kind platform bringing on board both major developed economies and major emerging market countries, G20 has been slated as a premier forum for international economic cooperation. It is unmatched in its representativeness, thus legitimacy, and the capacity to take and implement major, and sometimes tough decisions. There is an intrinsic need for a vehicle like the process to advance cooperation in global economic governance in an increasingly globalized and interconnected world. Arguably, if G20 does not exist today, it will have to be invented. The stake is high in a robust and functioning G20 for all the major economies and above all, the global economy as a whole.

The Group has no doubt evolved since its upgrade at the height of the last global financial crisis. Right now, it stands at a critical crossroads. While it is imperative to continue work on the unfinished agenda on crisis response, management and preparedness, the Group needs to redefine its role by transitioning from a largely short-term and cyclical towards a longer-term and more structural agenda. In many ways, the G20 is uniquely placed to set new directions and break new ground for international economic cooperation in response to new and evolving realities in the global economy.

Going forward, a key challenge facing both developed and emerging market economies is the secular weakness in their growth momentum as a result of both demand and supply-side factors. Insufficient demand has limited the scope for nominal GDP expansion. More importantly, stagnant or even negative productivity growth depresses on the supply side the medium and long-term growth potential of the global economy. This is a trillion dollar global question calling for a global answer. We in G20 must rise to this challenge.

The solution will have to be two-fold as well. On top of demand management through appropriate fiscal and monetary policies to deal with short-term fluctuations, G20 should play a leadership role and blaze new trails for raising the medium and long-term growth potential by tapping new, endogenous sources of growth and pushing out the frontiers of production.

In this connection, G20 has already sowed some seeds at previous summits,as well as in the run-up to Antalya, so we shall not start from scratch. We are even beginning to see some green shoots for possible early harvests. But if these green shoots are to grow up, into big trees and even become a forest, G20 needs to do more.

The 2016 Presidency has the makings of G20's China moment, as it will be virtually the first time that the Group, at the summit level, will be chaired by a developing country which is at the same time, one of the biggest economies. Inevitably, China will bring to the table some fresh perspectives and hopefully some new ideas, since we would come in from a somewhat different vantage point.

The aim is to build upon Antalya Summit and rich legacy of the Group and make further headway in promoting strong, sustainable and balanced growth, robust trade and investment, effective global governance and development that includes and benefits all.

While we look forward to the opportunity to exercise leadership, we are keenly aware that leadership means responsibility and a commitment to providing necessary public goods. As was observed by President Xi Jinping at the Brisbane Summit, China's initiative to host the G20 is based on our wish to make greater contributions to the Group and the world economy. Through joint efforts with our partners, we shall seek to secure the highest, rather than the lowest common denominator through consensus-building within the Group and beyond.

We hope that the dynamics of deeper engagement with the group through the Presidency will help to create a better external environment for and give a powerful impetus to our endeavours in further reform and opening up at a crucial juncture in the country's development, as we are approaching the first year of the 13th Five Year Plan. In many ways,the five concepts of innovative,coordinated,green,open and sharing development will not only set the direction for China's own future development,but also help to set the stage for our G20 Presidency next year and our partnership with the rest of the world for a long time to come.

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