G20: China’s Part in Global Economic Growth
By HE YAFEI
President Xi Jinping attends on November 15, 2015, the 10th G20 Summit in Antalya. THE 2016 G20 Summit will be held in the Chinese city of Hangzhou under the theme of “Building an innovative, invigorated, interconnected and inclusive world economy” and with the goals of transforming growth patterns in innovative ways, improving global economic and financial governance, promoting global trade and investment, and nurturing inclusive and interconnected development.
China’s hosting of the G20 Summit has attracted world attention for two reasons: First, the G20 stands at a critical juncture in transforming from a crisis-response mechanism to a long-term economic governance mechanism. Second, against the backdrop of the global economic downswing, people hope that China and other G20 participants will devise new ideas and plans to foster sustainable development of the world economy.
The world places high hopes on China because the world has encountered bottlenecks in promoting economic growth and reforming global economic governance, and also because China has achieved spectacular results over the past few years. At a time when China is assuming the G20 rotating presidency, countries around the world are pondering the question of what China can do for global economic growth. This also poses a severe challenge for a China which has entered its “new normal” stage.
As the most authoritative platform for leaders to liaise with one another and coordinate the financial sector, this year’s G20 Summit will seek solutions to sluggish global economic growth.
What then is amiss with the world economy? Chinese President Xi Jinping shared his views on this question at the 2015 G20 Antalya Summit as follows: First, although the world economy no longer teeters in crisis, the economic recovery base is weak nonetheless, while impetus for growth remains elusive. Second, progress in reforming global economic governance has been uneven, and thus international economic and trade rules are mired amid profound changes. Third, as the main body for world economic coordination, the G20 is confronted with great difficulties in managing macroeconomic policies.
These percipient assessments by the Chinese leader regarding the current world economy are likewise the main considerations prompting this year’s G20 Summit to focus on the theme of “Building an innovative, invigorated, interconnected and inclusive world economy.”
Innovative economic development concepts are of utmost importance. An ancient Chinese axiom informs that “Nothing can be accomplished without strong determination.” The economic development concepts of “innovation, vitality, interconnection and inclusiveness” conform to China’s new development concepts of “innovation, coordination, green development, opening-up and sharing” proposed during the Fifth Plenum of the 18th CPC Central Committee, all of which serve as indicators that China stands in the forefront in formulating global economic development concepts.
China has contributed more than 30 percent to global economic growth over the past several years, thereby entrenching the country as the engine driving global growth. G20 members and other economies around the world expect that China, through the G20 Summit in Hangzhou and other meetings, to play a leading part in uniting other G20 members to formulate new solutions to facilitate global economic growth and strengthen macroeconomic policy coordination in a bid to resolve the deep-level conflicts currently confounding the global economy.
Enhancing Communication and Coordination
Countries around the world today must adjust their economic structures to tackle the problem of economic imbalances. Globalization and global value chains have bonded nations into a community of shared future and common interests. Restructuring and promoting growth are no longer isolated behaviors of a single country.
It is critical for the G20 to play a leading role in bolstering coordination of macroeconomic policy among the major economies. First, efforts must go towards establishing a ministerial-level mechanism for macroeconomic policy coordination and joint-action and, especially, to enhance communication and coordination of financial, fiscal, monetary and trade policies. To better ensure the implementation of decisions by G20 leaders, the delegation of certain powers of coordination and supervision to the consultation mechanism of G20 finance ministers and central bank governors should be taken into consideration. The G20 members must further adopt a holistic view of the world economy, render their macroeconomic and financial policies more transparent, and fully consider the impact of their policies on other economies to avert adverse “spillover effects.” For example, when the Federal Reserve raises interest rates and adjusts the U.S. dollar exchange rate against other currencies, the Fed can notify G20 members and world financial centers in advance via coordination with the Financial Stability Board (FSB), an international body created by the G20.
Second, efforts should also be made to help developing countries enhance their capacity to deal with such financial and economic risks as those brought by fluctuations in bulk commodity prices and sudden outflows of liquidity stemming from a stronger dollar, so to forestall a severe impact upon and consequent damage to their national economies. Developing countries now account for half of global GDP and contribute over 50 percent to world economic growth, yet remain subordinate in decision-making or when expressing their opinions within the global financial and economic system.
The fluctuations of international capital markets and bulk commodity prices in general can engender huge risks that medium-sized and small countries find difficult to cope with on their own. The G20 Summit is expected to focus on how to help developing countries enhance their capability to avert and resist risks. From 2009 to the present, the U.S. has implemented quantitative easing (QE), a policy that has pumped US $6 trillion into its financial system. The European Central Bank and the Bank of Japan both continue to implement policies featuring excessive money supply. Currently, when the U.S. economy has gradually stabilized, the Federal Reserve is likely to raise interest rates, a move that in all likelihood will lead to a periodically strong dollar. The financial risk posed thereby may substantially harm emerging economies and developing countries. As the “guiding committee” of the global economy, the G20 is expected to help developing countries build a “firewall” to cope with financial and economic risks. As the rotating president of the G20, China will prioritize this issue on the agenda.
Foreign Minister Wang Yi briefs Chinese and foreign journalists on May 26, 2016 on proceedings at the G20 Hangzhou Summit. Spur Impetus to Economic Growth through Innovation
New impetus to galvanize the world economy should derive from technological innovations, but attention must also rest on preventing the development of automation and artificial intelligence (AI) and the use of robots from impacting the employment of those doing repetitive work. China in particular must stress this issue when designing the agenda for this year’s G20 Summit.
Reliance on innovation in technology and production models is needed in China’s industrial restructuring and upgrading. Efforts must not only target stimulation of overall demand, but also improvement of aggregate supply by developing new technologies, products, energy sources, and business models, the better to attract consumers and explore new markets. The market must also be given free rein to ply its function of determining resource allocation. At the same time, the governments of various countries must actively exercise effective macroeconomic regulation and control, as the coordination of the “invisible hand” of the market and “visible hand” of the government will reciprocally ameliorate one another’s workings.
A retrospective of the world economic development and China’s reform and opening-up of over 30 years demonstrates that innovation is an inexhaustible source of dynamism for sustainable economic growth. The motive force of economic growth must come from innovation, and from a new round of technological and industrial revolution. Xi Jinping has stressed that we are in the midst of a new industrial and informatization revolution and that accordingly we must clearly comprehend the current situation and achieve growth through innovation, new technologies, new types of business, and new models of production and business, a view that also holds true for world economic growth.
Innovation’s two major goals are to reform the economic system and mechanism and to spark technological and industrial revolutions. It presents an effective means for the Chinese economy to maintain medium- to high-speed growth under the current “new normal” stage by promoting innovation as a propellant, exploring new dynamism for growth, and persisting in the reform of the economic system and mechanism, a path that may also prove effective in lifting growth for other G20 members.
Representatives of industrial and commercial concerns within the G20 member states harbor the deepest understanding of economic development and growth. They will participate in the G20 activities through the Business 20 (B20) Summit. Other events affiliated with the G20 Summit include the Youth 20 (Y20), which brings together young leaders from across G20 countries, and Think 20 (T20), comprising think tanks, academics and researchers representing G20 Summit countries. These participants will offer their advice and suggestions for promoting world economic growth. China must plan in advance in order to present pragmatic plans to the summit.
For example, business representatives and youth leaders can discuss how to evade the pitfalls associated with capital and unemployment. It is axiomatic that some Asian and Latin American countries fell into the middleincome trap after becoming middle-income countries as a consequence of improper policies. Consequently, when their industrialization attained a critical mass, they hadn’t yet resolved problems relating to capital and unemployment. First, national savings mainly transformed into labor and resource products for export, and the capital needed for industrial upgrades was thus absent.Second was the difficulty experienced by low-end labor in gaining reemployment in the course of industrialization. Indeed, China’s experience in this regard is well worth sharing with other G20 members.
Developing countries such as China, India, Brazil, Indonesia, and Turkey can learn and draw experience from each other on similar issues. China is not a resource-exporting country, and its industrialization level is uneven in different regions. Its medium- to low-end labor can be absorbed internally by developing service and manufacturing industries. However, the situation may be quite different in countries reliant on resource exports.
Providing New Ideas for Achieving Balanced Development of the Global Economy
China is gearing up for the summit, its focus on transforming growth patterns in innovative ways, improving global economic and financial governance, promoting international trade and investment, and furthering inclusive and interconnected development. It may thus manifest its willingness to enhance exchanges and share experience in economic and financial governance with other G20 members. Its hope is that the G20 may lead world economic growth in the spirit of win-win cooperation.
China has contributed to fueling global economic growth during the most difficult time for the world economy. In 2015, the Chinese economy rose by 6.9 percent. Although growth was slowing, China’s economic structure had been optimized, with the proportion of tertiary industry hitting 50.5 percent, 10 percent higher than that of secondary industry. End-user consumption contributed as much as 66.4 percent to total GDP growth. Efforts such as streamlining administration and delegating power to lower strata, as well as lowering taxes and slashing various administrative fees have further stimulated enthusiasm for mass entrepreneurship and innovation. In China, an average 12,000 new businesses register each day, 53 percent of them engaging in new types of business and adopting new business models.
As a large responsible country, China wants to provide new ideas and new dynamism to boost the balanced development of the global economy, with the Belt and Road Initiative as an important trial in this regard. Practical measures adopted include: 1. Establishment of the Asian Infrastructure Investment Bank (AIIB), its aim to contribute its share to constructing infrastructure in countries along the Belt and Road using China’s development experience and accumulated technology and capital, and so boosting regional and cross-regional economic development; 2. Advocating new models for bilateral and multilateral cooperation while elevating international cooperative capacity. For example, efforts can be made to encourage government and private capital to invest in the construction of industrial parks as an incident to cooperation with countries along the Belt and Road. Those efforts demonstrate China’s resolve to shoulder its responsibility to participate in global governance.
China’s Five-Year Plans, a series of economic growth initiatives, have lasted the longest of any country in the world, having been implemented for a total of 60 years. As of 2016, China started to institute its 13th Five-Year Plan, which covers areas such as agriculture, industry, service industry, urbanization, resources and environment, technology and education, public service, social management, culture, economic reform, and opening up to the outside world. The G20 meetings encompass a summit of leaders, meetings of coordinators, ministerial and vice-ministerial meetings, and meetings of experts and professional working groups. These will all serve as platforms for cooperation and set the foundation for the implementation of a “global economic coordination system.” China’s experience stands as an exemplar worthy of reference in devising the G20 “global economic coordination system.” The 2016 G20 meetings may become an important occasion for China to share its development experience. We therefore hope that China’s achievements and experience will contribute to stimulating global economic growth.
HE YAFEI is former deputy foreign minister and former deputy director of the Overseas Chinese Affairs Office of the State Council.
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