Blog Post

China’s political agenda for the G20 summit

Chairing the G20 offers China a unique opportunity to set the tone in global economic debates, and the Hangzhou summit is the focus of attention. The author predicts that trade, structural reforms and a bigger global role for China will be Beijing’s three priorities. But how realistic are these goals?

By: Date: August 22, 2016 Topic: Global Economics & Governance

China will host the next G20 summit on 4-5 September in Hangzhou. With the clock ticking, the world waits to see how China will use the meeting to promote its domestic development agenda and shape global economic governance. I predict China will have three key aims: strengthening its international role; promoting trade openness; and a global policy agenda of structural reforms coupled with fiscal support for demand.

China will have three key aims: strengthening its international role; promoting trade openness; and a global policy agenda of structural reforms coupled with fiscal support for demand.

I draw these concrete aims from China’s stated themes for its G20 Presidency, namely growth, interconnectivity and inclusiveness. A Chinese saying claims that “Hangzhou is heaven on earth”, and the Chinese authorities will likely take advantage of this “paradise” to achieve their political goals. But are their objectives too far-fetched? Progress is difficult, especially at a time when the global economy is sluggish and stuck in a swamp where monetary policy seems to have lost its effectiveness. Only fiscal weapons are left, but that is only for the few fortunate economies which still have space. To judge just how realistic China’s targets for September’s G20 meeting might be, here is some detail on each of them.

Firstly, external trade is vital to support global growth — but especially growth in China. It is hard to find a country that has benefitted more from trade than China. Even though Beijing is rebalancing towards a consumption-based economy, China still needs to export at full capacity to keep growth at a high enough level. Protectionism is therefore one of the major risks to China’s successful economic transition. After the demise of the Doha round, and with China’s hugely increased negotiating power, bilateral trade agreements seem to have become China’s key policy tool to avoid protectionism. In any event, the G20 is a good place to remind global leaders of the importance of multilateralism and to widen the gains from international trade, which is still clearly in China’s interest.

The Chinese government will surely assert China’s relevance in global affairs and challenge the status quo.

Secondly, China’s keen desire to strengthen its soft power will be on display at the G20 summit. In fact, the Chinese government will surely assert China’s relevance in global affairs and challenge the status quo. The G20 is a perfect venue to do this, because emerging countries are an integral part of the group and this naturally weakens US dominance. Emerging economies are likely to support China’s wider global role at the G20 meeting, especially because two of the key topics on the agenda (the Paris Agreement on climate change and the financing of the global infrastructure gap) should bring emerging countries together with a relatively united position. It goes without saying, however, that renewed tensions in the South China Sea may overshadow such common interest. There is a risk that countries will fear an increasingly revisionist China. That being said, China will probably use the summit to showcase its new international institutions, both the Asian Infrastructure Investment Bank and the New Development Bank. Beijing will also want to promote its massively ambitious Belt and Road Initiative. The massive figures for Chinese outward direct investment, which have only accelerated since the beginning of 2016, are another sign of China’s rapidly increasing clout in the world, which supports a bigger role in the international financial architecture.

In the point of view of the Chinese government, high growth can be maintained through lax demand policies

Finally, China’s third key goal will be to stress the need for structural reforms while maintaining high growth. In the point of view of the Chinese government, high growth can be maintained through lax demand policies. In the absence of monetary space at the G7 level, the recipe is fiscal expansion for as long as there is space. For emerging economies, China will probably push for both. On structural reforms, President Xi’s latest push for a reform agenda, at least nominally, was outlined in the 13th Five-Year Plan. This should also serve as a basis for China’s call for structural reforms at the G20, so as to increase productivity at the global level. This point seems particularly important to me, because the developed world faces a number of challenges, such as high debt, low return on investment and an aging population, which only a productivity boost can overcome.

In short, we should expect China, as host of the upcoming G20 summit, to push for three key objectives, namely trade openness, a larger international role and structural reforms with lax demand policies. All three should find enough support from G20 participants, and thus appear in the communiqué. The real question, however, is how the G20 will really operationalise these objectives in the future.  That is where China may have much less leeway, given the inter-governmental structure of the G20 and the lack of operational independence that such a body enjoys.

 


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint. Anyone is free to republish and/or quote this post without prior consent. Please provide a full reference, clearly stating Bruegel and the relevant author as the source, and include a prominent hyperlink to the original post.

View comments
Read article More by this author

Opinion

China Fails to Woo U.S. With Financial Sector Opening

China's recent announcement of reforming its financial market has received little enthusiasm from the U.S. despite its potential benefits. The lack of a clear agenda regarding its economic rival has pushed the Trump administration to minor any significant progress of China's reform, and to maintain focus on strategic issues.

By: Alicia García-Herrero Topic: Finance & Financial Regulation, Global Economics & Governance Date: January 5, 2018
Read article

Opinion

Chinese banks’ improved asset quality cannot hide other phantoms

The recent improvement in asset quality cannot mask other growing concerns in China’s banking sector. Beyond liquidity concerns, other structural issues such as low profitability and insufficient generation of organic capital, are emerging.

By: Alicia García-Herrero and Gary Ng Topic: Finance & Financial Regulation, Global Economics & Governance Date: December 20, 2017
Read article Download PDF More on this topic

External Publication

Central Asia—twenty-five years after the breakup of the USSR

Central Asia consists of five culturally and ethnically diverse countries that have followed different paths to political and economic transformation in the past 25 years. The main policy challenge for the five Central Asian economies is to move away from commodity-based growth strategies to market-oriented diversification and adoption of a broad spectrum of economic, institutional and political reforms

By: Marek Dabrowski and Uuriintuya Batsaikhan Topic: Global Economics & Governance Date: November 14, 2017
Read article More by this author

Blog Post

European worries about isolationist trends

Populist shocks in the UK and US threaten the multilateral order on which the EU depends. What lies behind these earthquakes, and what does it mean for Europe? Withdrawing from the world is no solution to geo-political upheavals, but Europe needs to reassess the future of globalisation.

By: Maria Demertzis Topic: European Macroeconomics & Governance, Global Economics & Governance Date: November 7, 2017
Read article More on this topic More by this author

Blog Post

Long-term growth potential, or dead in the long run?

By linking growth with both employment and the imperative for India to hold its own with China for strategic autonomy, Prime Minister Modi has brought sustainable, high quality, inclusive economic growth to the centre of political discussion, which is where it rightfully belongs.

By: Suman Bery Topic: Global Economics & Governance Date: October 5, 2017
Read article More on this topic More by this author

Blog Post

Chinese banks: An endless cat and mouse game benefitting large players

As deleveraging moves up in the scale of objectives of the Chinese leadership, banks now face more restrictions from regulators. As a result, banks have been very creative in playing the cat and mouse game in front of evolving regulations.

By: Alicia García-Herrero Topic: Global Economics & Governance Date: September 26, 2017
Read article Download PDF

Policy Contribution

Capital Markets Union and the fintech opportunity

Fintech has the potential to change financial intermediation structures substantially. It could disrupt existing financial intermediation with new business models empowered by intelligent algorithms, big data, cloud computing and artificial intelligence. Policymakers need to consider four questions urgently: Develop a European or national fintech market? What regulatory framework to pursue? Should supervision of fintech be exercised at the European level? What is the overall vision for the EU’s financial system?

By: Maria Demertzis, Silvia Merler and Guntram B. Wolff Topic: Finance & Financial Regulation, Innovation & Competition Policy Date: September 15, 2017
Read article More on this topic More by this author

Opinion

Is China Deleveraging? Too Early to Cheer

This blog post was originally published on BRINK “Deleveraging” is the new buzzword in China. The leadership clearly wants to scale back its epic borrowing, but it is not necessarily ready to pay the price for it, namely, the price of having less support for growth. The question is whether the recent efforts of China’s leadership to […]

By: Alicia García-Herrero Topic: Global Economics & Governance Date: September 13, 2017
Read article More by this author

Podcast

Podcast

Surprising priorities for Europe and China

Bruegel’s Alicia García-Herrero and Robin Niblett of Chatham House discuss a new joint report on EU-China relations. How easy was it to find common ground with Chinese partners? And what should be the priorities for economic cooperation between Europe and China?

By: The Sound of Economics Topic: Global Economics & Governance Date: September 13, 2017
Read about event More on this topic

Past Event

Past Event

EU-China economic relations: looking to 2025

This event will see the launch of a report on EU-China relations and discuss issues such as trade and investment, industrial cooperation and innovation and global governance

Speakers: Victor Chu, Ian Davis, Alicia García-Herrero, Dame Clara Furse, Tony Graziano, Anatole Kaletsky, K.C. Kwok, Lawrence J. Lau, Ina Lepel, Hanna Müller, André Sapir, Robin Niblett, György Szapáry, Jean-Claude Trichet, Zhang Yansheng, H.E. Ambassador Yang Yanyi, Liu Xiangdong, Gunnar Wiegand, Guntram B. Wolff, Huang Ping and Elena Flores Topic: Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: September 13, 2017
Read article Download PDF More on this topic

Book/Special report

EU–China Economic Relations to 2025. Building a Common Future

The EU and China, as the world’s second and third largest economies, share a responsibility in upholding the rules-based, global free trade system and other forms of multilateral cooperation, especially on combating climate change. This report sets out the main conclusions of a research project between European and Chinese think-tanks, which addresses the prospects for the EU–China economic relationship. A Joint Report by Bruegel, Chatham House, the China Center for International Economic Exchanges and the Institute of Global Economics and Finance at The Chinese University of Hong Kong.

By: Alicia García-Herrero, K.C. Kwok, Tim Summers, Liu Xiangdong and Zhang Yansheng Topic: Global Economics & Governance Date: September 13, 2017
Read article More on this topic More by this author

Opinion

Hong Kong should add the euro to its dollar peg

Volatility offers an opportunity for the territory to rethink its strategy. With the economy now more synchronised with China than ever before, the dollar peg may no longer provide an accurate reflection of the real value of the Hong Kong dollar.

By: Alicia García-Herrero Topic: Global Economics & Governance Date: September 12, 2017
Load more posts