With the G20 Hangzhou Summit fast approaching, Hangzhou, a charming city with cultural appeal and innovative dynamism, is ready to deliver to the world “a uniquely impressive summit” on 4–5 September 2016.[1] In contrast to some previous summits, local citizens are embracing the opportunity to host the “most important home diplomacy of China this year” warmly. There is prestige in being a G20 Summit host city. It also brings better infrastructure and public service that improves daily lives. Outside of the benefits to the citizens of Hangzhou, what are the “uniquely impressive” achievements that the 2016 G20 Leaders’ Summit can be expected to deliver? The problems are basically old, although efforts are new. In a world facing continuous sluggish growth, a rise in populist sentiment and a stalemate in multilateralism, the G20 continues to act as a platform for economic cooperation. The forum facilitates the building of trust among its members, progressing minimum standards and otherwise seeking the best international economic advances possible by voluntary cooperation. Perhaps the most unique outcome from this year’s G20 Presidency will be for China itself to shift in its psychology and take more ownership of global economic governance. But with the world muddling through in an era of international power diffusion and regionalisation, it would be overly optimistic to expect policy miracles from any single G20 Summit. It seems unlikely that Hangzhou will break the mold, although there is likely to be progress on a range of issues. This paper focuses on the advances in terms of macroeconomic policy cooperation and the G20’s ongoing evolution from a ‘crisis’ committee to a ‘steering’ committee.

A more balanced approach to monetary, fiscal and structural policies

Given rising volatilities and uncertainties, economic policy cooperation remains one of the core functions of the G20, and is arguably its most important role While monetary policy cooperation under the G20 has been well managed so far in 2016, the G20 has had more muted success in its efforts to enhance growth through structural reforms.

This year’s G20 continues to monitor the major systemic risks that could harm the world economy, such as financial and commodity market volatility, rising inequalities and environmental threats, geopolitical conflicts, terrorism, and refugees. In the first half of 2016, the G20’s focus has been on the spillover effects associated with divergent monetary policy adjustments of major economies, principally managing the impact of rising interest rates in the United States at the same time that other major economies were moving in the opposite direction. Chinese financial sector volatility and exchange rate policy movements also attracted great attention, a development that was a little embarrassing for the Chinese Presidency.

Central banks across the world continue to be driven by a domestic mandate, but take international events into consideration when making decisions. Ahead of the first finance ministers and central bank governors meeting in Shanghai in late February, there was speculation that China, the United States, and other major economies would reach a grand ‘Plaza-style’ accord on exchange rates. However, China had largely put issues around the yuan to bed when People’s Bank of China Governor Zhou Xiaochuan outlined China’s approach to exchange rate management.[2] Rumours of a secret ‘Shanghai agreement’ have been officially denied by Chinese officials. It appears clear that a grand bargain on exchange rates was not a realistic proposition.[3]

The events in the lead-up to the Shanghai meeting reflect a more outward-looking attitude and more active participation of Chinese decision-makers in global economic governance. Governor Zhou followed February’s speech with a candid and thorough elaboration of the unique rationale, goals, and approaches of Chinese monetary policy as the Chinese economy transitions, at the IMF in June.[4] The groundbreaking speech is also an example of the ever-closer relationship between China and the IMF in the seven years following the global financial crisis. It contrasts sharply with the alleged strife between China and the IMF on the exchange rate prior to the crisis.[5]

Then, on 23 June, global market attention shifted to Europe and the uncertainties arising around the Brexit referendum. After the announcement that the United Kingdom had voted to leave the European Union, the G20 was not as swift as the G7 finance ministers and central bank governors in issuing a common statement to reassure markets that they were monitoring movements and financial stability. This was a firm reminder of the need for all G20 members to remain prepared to manage the complex array of consequences, predictable and unpredictable, associated with global risks.

A related core issue for the G20 is how to drive growth and create jobs. G20 members have been divided in views on whether they should use fiscal policy more actively with current global public debt levels.[6] With fiscal space more constrained, G20 growth efforts have been overly reliant on actions by central banks, and extraordinarily accommodative monetary policy settings have not been able to effectively revive the real economy on their own. It has not been surprising that China has focused its efforts on structural reform for improved long-term growth, an area the G20 has been able to reach a constructive consensus in recent years. When China assumed the G20 Presidency, it built on the comprehensive growth strategies that Leaders adopted in Brisbane in 2014 and renewed in Antalya in 2015, but with an emphasis on so-called ‘supply-side’ reforms that resonate well with its domestic fiscal agenda.

Still, the G20’s emphasis on structural reforms should not be over-read. An important message that the G20 China Presidency has sent has been of the need for a more balanced approach to growth, especially a clear and explicit endorsement of the role of fiscal policy. In Shanghai in February, G20 finance ministers and central bank governors reiterated their calls six months earlier to use all policy tools – monetary, fiscal, and structural – individually and collectively to achieve their goals of stronger growth and employment outcomes. Moreover, they argued that:

“we will use fiscal policy flexibly to strengthen growth, job creation and confidence, while enhancing resilience and ensuring debt as a share of GDP is on a sustainable path. We are also making tax policy and public spending as growth-friendly as possible, including by prioritizing expenditure in favor of high-quality investment.”[7]

The G20 consensus of “collectively” using all policy tools and their detailed elaboration about the role of fiscal policy reflects a subtle shift in attitude of those members that have been most cautious about using fiscal policy in support of growth.[8] Fundamentally, the change recognises the challenges that have been embodied by continued downward revisions to world economic growth projections by major international organisations. The endorsement by G20 members of a more balanced approach towards growth may not have translated into a collective action plan as in 2009; but China’s Presidency has overseen a positive consensus emerge about how to promote mutual interactions of fiscal and structural policies. Similar debates continue to evolve within China. When people abuse the term ‘supply-side reform’, serious economists have strongly argued for the legitimacy and necessity of quality public investment for infrastructure, and for an ambitious structural reform agenda to be implemented smoothly in modern China.[9]

Infrastructure investment continues to be an area of G20 focus, with the 2016 agenda prioritising the role of multilateral development banks. Upon request, 11 multilateral development banks, including the new Asian Infrastructure Investment Bank and the BRICS New Development Bank, made a joint declaration of aspirations on actions to support Infrastructure Investment, which included quantitative and qualitative measures. A Global Infrastructure Connectivity Alliance is to be launched in Hangzhou, to increase synergies and cooperation of regional and national infrastructure initiatives.[10]

Moving from a crisis committee to a steering committee
There has been much made of the G20’s transformation from a contingent ‘crisis committee’ to a strategic ‘steering committee’ for the world economy, although this transformation is still incomplete.[11] The Chinese Presidency has been very keen to leave its footprint in promoting the G20 transformation from dealing with “cyclical issues” to addressing “structural issues”.[12] This can be clearly seen in China’s  four I’s framework[13], and the recent announcement by Foreign Minister Wang Yi about the “ten major results” for Hangzhou. The ten major results include the following actions: [14]

•develop a blueprint of innovative growth
•formulate action plans to implement the UN 2030 Agenda for Sustainable Development
•identify priority fields, guiding principles and index system for structural reform
•draft strategies for global trade growth
•set out guiding principles for global investment policies
•deepen the reform of the international financial architecture
•establish three-in-one cooperation on anti-corruption[15]
•launch a cooperation initiative to support the industrialisation of Africa and the least developed countries
•draw up entrepreneurship action plans
•promote the early entry into force of the Paris Agreement on climate change.

All ten items are long-term issues, and China aims to build on the G20’s success in updating financial regulatory rules, strengthening bilateral and multilateral economic surveillance, reforming global financial institutions, and the Base Erosion and Profit Shifting (BEPS) international taxation package. Such measures are being implemented or will be due in the next several years. If they are fully implemented, global financial and tax governance will be clearly improved, although their impact on global development needs to be carefully monitored.

The “ten major results” from the Hangzhou Summit reflects a clear intention of the Chinese Presidency to achieve tangible advancements across a broad spectrum of issues. I will now focus on the advances on four prominent areas: the implementation of the UN 2030 Agenda for Sustainable Development; a map for structural reform and blueprint for innovative growth; trade and investment; and energy cooperation.

Implementation of the UN 2030 Sustainable Development Agenda

The path-breaking 2030 Sustainable Development Goals (SDGs) approved by the UN General Assembly, along with the Addis Ababa Action Agenda and the Paris Agreement on Climate Change, provide a comprehensive framework to foster transformation of our world economy and its governance. While the United Nations will continue to lead in monitoring national achievement of sustainable development and climate change outcomes, China’s goal is for the G20 to ‘lead by example’ on the SDGs and commit to a collective action plan. It has encouraged the G20 Development Working Group to work closely with other G20 working groups to ensure a holistic approach towards the SDGs. China will also publish its own national action plan integrating SDGs with its domestic strategy. But the implementation of the 2030 Agenda is such a comprehensive work task, it’s success depends on ongoing support from the G20. Future presidencies need to carry on work identifying practical priorities for the G20 that align with the accumulated G20 agenda.

A map for structural reform and blueprint for innovative growth

Structural reform has long been prominent in the G20’s agenda. The Growth Strategies the G20 Leaders committed to in Brisbane included a thousand structural reform measures. Implementation is slow, however. The Chinese Presidency seeks to raise structural reform to a new level, with the aim of providing G20 members with high-level guidance for a more focused and measurable structural reform action plan on a voluntary basis.[16] The goal is for an increasingly evidence-based G20.[17] There is some concern about the the Chinese Presidency’s ambitious plan, since it requires tackling major domestic policy obstacles that hamper total factor productivity growth. In the long-run, the outcome document may prove to be be a convenient map for G20 members and other countries to monitor progress.

“Innovative growth” is specifically highlighted as a fundamental goal of China’s G20. Three task forces were established: on innovation in general; the fourth industrial revolution; and the digital economy; with the purpose of drawing a “blueprint” for innovative growth. The blueprint may include commitments to increase research and development expenditure as a share of G20 GDP, and enhancing science cooperation between G20 countries. But this is only a start for G20 members to share their interests and concerns in this area. Thorny global issues, such as intellectual property protection, technology transfer, access to the internet, and protection of privacy, will eventually need to be seriously discussed at a multilateral level.

Trade and investment

Aside from G20 members committing not to introduce new trade restrictive measures, and then doing so, G20 trade discussions have not been one of the G20’s strongest areas of focus. In particular, minimal progress has been made on the Doha Development Agenda or advancing reform of the multilateral trade architecture. China has worked hard to raise the profile of the G20’s trade agenda. The Chinese G20 Presidency has encouraged a regular G20 Trade Ministers Meeting and established a Trade and Investment Working Group (TIWG). On 9 and 10 July, G20 trade ministers issued a joint statement and three annexes detailing the terms of Reference of the TIWG, a general strategy on global trade growth, and guiding principles for global investment policymaking.[18]

There were many aspects to these documents. In the joint statement, trade ministers maintained the G20’s standstill commitment on trade protectionism until 2018 and repeated previous G20 Summit language on the Doha Development Agenda. Trade ministers also committed to rectify the WTO Trade Facilitation Agreement by the end of this year[19] and aimed to conclude an ambitious, future-oriented Environmental Goods Agreement (EGA) at an EGA ministerial meeting at the end of 2016. They encouraged future regional trade agreements by G20 members to be open to accession and include provisions for review and expansion. The statement also included an acknowledgement to promoting e-commerce.[20]

The Trade Ministers Meeting was also notable for what it delivered on investment. Nine general Guiding Principles for Global Investment Policymaking were approved, which includes relatively balanced languages accommodating diversified interests. However, the document did not indicate a follow-up work plan, and should not be interpreted as an effective step by the G20 to restart the decades-long journey towards a global investment regime under the auspices of a global international financial institution. Major economies are struggling to finish investment agreements, such as the US–China Bilateral Investment Treaty and Transatlantic Trade and Investment Partnership. However, the expansion of the G20’s trade agenda into investment should help to promote the coherence of trade and investment policies. This year’s G20 also raised the issue of global excess capacity in steel, a source of trade friction, with discussion deferred to a September meeting of the OECD Steel Committee.

Energy cooperation: More about the market

The G20 Energy Ministers Meeting concluded in Beijing in early July with a communiqué and three affiliated documents on energy access in Asia and the Pacific, renewable energy, and energy efficiency.[21] However, the G20 energy ministerial was poorly attended, with several ministers not making the meeting a priority, and it produced a remarkably weak statement. Energy ministers  only agreed to “endeavor to make further progress in moving forward” towards the 2009 commitment to phase out inefficient fossil fuel subsidies.[22] Although they did commit to “increasing substantially the share of renewable energy in the global energy mix”, it was without the quantitative target that the Chinese Presidency initially aspired towards. Interestingly, natural gas seems to have been the real winner, with the first “G20 Natural Gas Day” held as a side event of the Energy Ministers Meeting, which gathered about 300 participants.[23] Crucially, this year’s Energy Ministers Meeting did not respond to the strong call from think tanks for bolder steps by the G20 towards more inclusive global energy governance.[24] In a period of energy transition, there appears to be a lack of incentive for key energy actors to pursue reform of the formal global energy architecture.

Conclusion
The Chinese G20 Presidency of G20 has pursued a more balanced approach to global growth in 2016, along with a long-term vision for trade, investment, and sustainable development. The structural reform agenda has been enhanced, while the role of fiscal policy has been highlighted. Trade and investment issues have been given a higher profile compared with previous summits. The implementation of the 2030 Sustainable Development Agenda and Paris Agreement on climate change will be key topics of discussion in Hangzhou, and these two items also seem particularly well aligned with what the German presidency may pursue in 2017.

The 2016 Chinese G20 Presidency approach clearly mirrors China’s domestic reform and growth agenda. China is eager to exhibit its strong commitment to global cooperation by hosting the G20, at a time when it feels cornered in Asia-Pacific geopolitical and territorial conflicts. China will likely continue its commitment to the G20 in the future, given the forum matches its own economic interests in the long run. However, this year’s G20 process has shown the limitations of China’s global leadership role in this increasingly diversified world. Leading by example is still the best China can do.

(source:19 August, 2016, Lowy Institute for International Policy)

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