School children in Hangzhou draw interesting city spots on a wall ahead of the G20 Summit in September (XINHUA)
Expectations are high for the Group of 20 (G20) Summit that will be held in September in Hangzhou, a garden city in east China's Zhejiang Province. It is the first time that China will host and chair the summit. The world's second largest economy is expected to play a larger role in promoting world economic growth and advancing the reform of global economic governance.
Why is China the host presidency? The decision on which country would host the 2016 summit was collectively made at the Brisbane G20 Summit two years ago. World leaders chose China in the hope that the country would take the lead in coordinating economic and financial policies between the major economies.
Many leaders also hope that China will promote the reform of international monetary institutions and aid in preventing another financial crisis.
Global economic governance institutions have gone through major changes over the past few years. Emerging economies and developing countries have increased their representation in traditional international institutions, including the International Monetary Fund (IMF), the World Bank and the World Trade Organization (WTO). Moreover, they have extended their voice in new multilateral coordination mechanisms, such as the G20, the Asian Infrastructure Investment Bank and BRICS (Brazil, Russia, India, China and South Africa) New Development Bank.
The IMF executive board approved in November 2015 the inclusion of the Chinese currency, the yuan, in its special drawing rights (SDR) basket. This move is conducive to improving the diversification and representation of the SDR as an important reserve asset. In December, the U.S. Congress ratified a voting rights reform in the IMF that the organization decided to implement in 2010, setting an example for the reform of other international financial institutions.
Meanwhile, WTO members for the first time promised to abolish all agricultural export subsidies and reached new multilateral agreements on the use of export credits, cotton trade and international food aid. These new rules are vital to improving the income of rural people in the least-developed countries.
China became a new shareholder in the European Bank for Reconstruction and Development, which provides opportunities and support in the implementation of the China-proposed Belt and Road Initiative and furthers Sino-European financial cooperation.
But these reform measures are just the beginning. To adapt to the changing world economic situation and solve global economic problems, the world must pursue a deeper reform of global economic governance to make it more active and effective.
China, as host of the Hangzhou G20 Summit, should enhance coordination with other G20 members to seek solutions to those problems and secure durable growth.
Furthermore, as the world's largest developing country and emerging economy, China should work to increase the voice of emerging economies and defend their fundamental interests to establish a fairer and more reasonable world economic order. In its latest assessment, the IMF said that emerging economies remain the engine of world economic growth.
With the G20 being the highest-level dialogue between leaders of developed and developing countries, policymakers need to coordinate their macroeconomic policies so that there is room for prosperity for each economy.
Some Western countries worry that emerging countries will make new rules to challenge existing international institutions. Because of this viewpoint, Western countries are inclined to bind emerging countries to the current economic and trade framework while seeking gradual reform in global governance. As long as emerging economies play by the same set of rules, Western countries are more inclined to make some concessions in the arrangement of international institutions.
Emerging powers have in effect benefited from globalization and the current order. In fact, they want to make the institutions fairer. The G20 mechanism is a cooperative platform that could meet the demands of both developed and developing countries.
The G20 is facing several challenges since its first summit was held in Washington, D.C. in 2008: Some are caused by its history and others are related to the foundation on which the summit was created. The group's influence is declining and disputes among its members are wide. China, in assuming the role as host, has to deal with these issues by coordinating with all parties at the Hangzhou summit.
A big challenge involves the G20's legitimacy. No matter how much of the total world GDP the G20 members account for, it needs to make a sophisticated institutional design to conduct global governance as a legitimate representation of the international community. Therefore, the G20 must build an institutional connection with the United Nations and its specialized agencies, as well as other intergovernmental organizations.
The G20 is inefficient in decision-making and implementation. The group is widely criticized for turning into a talking platform with few tangible actions.
The G20 should seek a transition from merely responding to crises to acting as a body for long-term global governance, and pursue solutions to global economic and financial problems. The G20's low efficiency is attributed to both its function as an informal forum and to fragmented global economic governance in general.
Because of its informal nature, the G20's decisions are non-binding on its members and countries often make pledges that they don't act on.
The Group of Seven (G7), on the other hand, is a formal organization under the Bretton Woods system, and could take action on global affairs, though its influence and reach has waned since the G20 was established. But the G20 has not yet set up a working mechanism with the IMF or the World Bank.
The wide divergence of opinions among G20 members also hampers the group's ability to act together. The United States, the EU and Japan are still hoping the G7 can influence and control the G20's agendas. G20 members can be divided into three subgroups: G7, BRICS and MITKA—Mexico, Indonesia, Turkey, South Korea and Australia. Coordinating action between these different groups is highly complicated.
The G20 includes the world's major powers, but this has proved to be a double-edged sword. In recent years, geopolitical tensions between major powers have been rising, which is reflected in the Ukraine crisis, Syrian conflict and the U.S. rebalancing strategy in the Asia-Pacific. These rising tensions would negatively impact coordination between major powers, thus weakening the foundation for the G20 to make decisions and take concerted action.
Hangzhou in the spotlight
China should make efforts to ensure the Hangzhou G20 Summit serves as a link between the past and the future. First of all, China should be well prepared in setting the summit's agenda.
Boosting world economic growth is always at the core of each year's summit, because growth concerns every country whether it is developed or developing. In its 13th Five-Year Plan (2016-20), China said it will achieve development that is innovative, balanced, green and shared. As part of its "new normal," China is striving to transform its economy from one based on heavy industries to an innovative and service-focused economy.
To promote economic growth, major economies must coordinate their macroeconomic policies and development strategies. China is trying to work with other countries along the route of the Belt and Road Initiative. According to an IMF assessment, if the initiative can be successfully implemented, it will contribute as much as 30 to 40 percent to world economic growth.
World leaders should reach a consensus on a feasible timetable of the G20's transition. To achieve this, members should prioritize the following aspects in the next five years.
The organization should improve its development agenda by meeting the needs of both developed and developing countries. For example, developing countries are concerned about infrastructure, energy, food and commodity supply security, while developed countries care more about climate change.
The G20 should establish a secretariat as soon as possible, which will improve its ability to research problems, set agendas, make policies and carry out decisions. The G20 currently works through informal meetings and has not yet set up a permanent secretariat. Without a permanent operation body, it is hard for the G20 to exploit its full potential.
Reforming the international monetary system should begin with the IMF and focus on expanding the diversification of international reserve currencies and enlarging the functions of the SDR.
The G20 also needs to solve its legitimacy problem. The group should make clear its connection with the United Nations through legal documents and bring in the IMF, World Bank and WTO as its executive organizations. It also needs to improve its governance architecture under the UN framework, which would lay a legal foundation for the group to conduct global governance.
Finally, the G20 should strengthen coordination and communication with major powers and blocs. For this year's summit to be productive, China must strengthen communication with the United States.
China and the United States coming to a consensus is an important condition for the G20 in taking decisive action. The importance of this relationship was highlighted during the two countries' cooperation during the financial crisis in 2008 and 2009. Effective coordination between the two sides is a prerequisite for a successful G20 transformation.
The author is China's former Vice Minister of Foreign Affairs
Copyedited by Jordyn Dahl
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