This article first appeared in Forum, The Edge Malaysia Weekly, on December 14 - 20, 2015.
IN just over a month, China will assume the G20 presidency. Over the next year — and especially at the organisation’s September summit, to be held in Hangzhou — China plans to help lay the groundwork for a world economy that is more “innovative, invigorated, interconnected and inclusive”. The question is how.
One place to look is the current G20 presidency, held by Turkey, which has emphasised inclusiveness, implementation and investment for growth. Though securing consensus within the G20 is notoriously difficult, the Turkish presidency has had three key successes.
In the last year, Turkey has spearheaded a new accountability framework for efforts to boost growth in the G20 countries. It has launched a World Small and Medium Enterprise Forum aimed at enhancing the contributions of SMEs to the global economy. And at the recent G20 summit in Antalya, held just two days after the Nov 13 terrorist attacks in Paris, a consensus emerged that the fight against the Islamic State is a “major priority”.
In short, the G20 has gained some momentum, and China can benefit. If the current United Nations Climate Change Conference produces a binding global agreement to curb greenhouse gas emissions, that momentum will become even stronger.
Given that the G20 countries represent two-thirds of the world’s population and 85% of its GDP, they would be integral to the implementation of any deal. By providing a framework for these countries to meet regularly to discuss global challenges like climate change, the G20 — which is, at best, a club of self-selected members — gains legitimacy.
All of this bodes well for China’s capacity to help counter the global slowdown in growth, trade and investment. And not a moment too soon. The ongoing slowdown is among the greatest risks the world currently faces because it could exacerbate desperation and instability in already fragile countries while compelling more robust economies to turn inwards rather than address proliferating crises.
Fortunately, China has lately been showing its commitment to becoming a more responsible global stakeholder. Perhaps most notably, it recently led the establishment of the Beijing-based Asian Infrastructure Investment Bank (AIIB), which will serve largely as a vehicle for Chinese foreign investment.
Specifically, the AIIB will (among other things) provide funding for China’s ambitious “one belt, one road” policy, which aims to enhance trade linkages throughout Asia, across the Middle East and into Europe through massive infrastructure investment. The fact that more than 50 countries signed on as founding members despite opposition from the US and Japan indicates that members’ interest in securing resources to meet urgent infrastructure trumps geopolitical competition.
The same brand of pragmatism was apparent in China’s response to its exclusion from the recently agreed Trans-Pacific Partnership (TPP) trade agreement, spearheaded by the US and including 12 Pacific Rim countries. Instead of grandstanding, China has shown its willingness to pursue different types of trade arrangements, as needed.
If China can grasp the opportunity of the G20 presidency to broker a deal to conclude the World Trade Organization’s long-stalled Doha Development Round, its credentials as a global stakeholder would be enhanced.
To be sure, China might ultimately join the TPP, a move that some Chinese believe would, like accession to the WTO, support domestic reform. But even if China stays out, it seems likely to continue doing its part to enhance trade.
There is more promising news. The renminbi is poised to join the US dollar, the pound sterling, the euro and the yen in the basket of currencies that determines the value of the International Monetary Fund’s reserve asset, Special Drawing Rights. With the renminbi moving one step closer to becoming a reserve currency, China’s capacity to help the world — and especially emerging market economies — cope with impending market volatility will be greatly strengthened.
Building a robust, unified and fast-growing global economy will be extremely difficult even under the most favourable circumstances. It will be impossible if large swathes of the world — most notably the Middle East — remain mired in chaos and violence. Given this, China could, like Turkey, use its G20 presidency to promote consensus on the need to end the Syrian conflict and to support long-term peace and economic development throughout the Middle East by pursuing strategies that revive trade, investment and employment.
In a multipolar world, emphasis on common interests is the key to fostering cooperation and progress. Though the Syrian crisis is undoubtedly highly complex and the actors involved — Iran, Russia, Saudi Arabia and Turkey — have distinct objectives, no one can deny the economic benefits of social and political stability.
Likewise, while the advanced economies may be tempted to pursue austerity, the reality is that stronger growth would benefit everyone with rising energy and commodity prices lifting the emerging economies out of their current low-growth and debt trap.
Next year, the G20 has an important opportunity to show that it can deal effectively with global crises, from the risk of secular stagnation to the scourge of transnational terrorism. With the right mix of realism and power sharing, China’s G20 presidency could catalyse important progress — and perhaps even place a firm foundation beneath a new global economic architecture fit for the 21st century. — Project Syndicate
Andrew Sheng is Distinguished Fellow of the Asia Global Institute at the University of Hong Kong and a member of the UNEP Advisory Council on Sustainable Finance. Xiao Geng, director of the IFF Institute, is a professor at the University of Hong Kong and a Fellow at Asia Global Institute.