The Youth 20 China 2016 meeting, one of the outreach programs of this year's G20 Summit, opens in Shanghai on July 27 (XINHUA)
China, now the world's second largest economy, is still growing at a relatively robust pace—at least compared with the G7 economies. It has attracted considerable international attention as the host of this year's G20 Summit. China's hosting of the G20 presidency comes at a moment when its leadership has begun to take a more active role on the global stage.
China should seize this opportunity to lead by tapping the G20's potential to address fundamental global economic challenges, with which China's own interests are increasingly embedded. Most challenges facing China's economy are not just China's own, but exist in different forms for both advanced and emerging economies. Having benefited from market-oriented reform, integration with the global economy, and the resulting technological catch-up, China provides a most recent relevant case for other developing economies. However, China also faces great external and internal challenges ahead in advancing its economic progress.
More economic openness and financial resilience constitute a key driver of further expansion of global value chain and technology diffusion. China can help strengthen the G20's legitimacy by bringing more of the aspect of fair access and distribution of opportunity in trade, investment and finance to relevant policy dialogues. Through this initiative, China can also show its willingness to support the development of developing economies outside the G20. Besides working on a more development-favorable global policy environment, China can also put effort into developing the G20's potential in furthering domestic structural reform within member economies to lay the market and institutional foundations for sustainable productivity growth.
Since the realistic room for global economic policy coordination varies from one issue to another, due to their different game structures in essence, it will be far from objective if we have similar expectations for all.
With the growing importance of China in the world economy, the country has become an important partner in global economic governance. Before the financial crisis of 2008, the rising trade surplus in China to a large extent reflected a mirror image of the widening trade deficit in the United States. China's exchange rate arrangement and current account adjustment suddenly assumed global significance and was no longer just its own business. While China was pushed into the center stage of global economic policy discussions by events, its authorities were reluctant to take too strong a leadership role too soon, as the country was still a developing economy with still many people living under the official poverty line.
Given the rotating mechanism for the G20 presidency, the country hosting the presidency can play a very critical role in terms of agenda setting and leading the concerted policy effort. How China handles the presidency will showcase China's top leadership's view on the global economy, global economic governance and China's role in both. It will also be a good opportunity for China to develop its own leadership roles in global economic policy dialogues.
In recent years, there has been also a gradual evolution in the G20's agenda from short-term focus to medium- to long-term focus, since the Los Cabos Summit [in Mexico] in 2012. This shift of focus in agenda in the G20 countries corresponds well with China's economic transition and the subsequent huge demand for further reforms. China's GDP growth has slowed down since 2011, reflecting to a large extent the slowing down of global growth as well as difficulties with China's own structural adjustment. As with the global economy, China can no longer revert to the growth model before the crisis, because it will only exacerbate the overcapacity issue and the risks in the financial system. Two features from China's own experience—one external and the other internal—can be drawn on in addressing these issues: externally, the integration with the global economy through more openness in trade and investment within a stable international financial and monetary system; internally, deepening reforms to facilitate resource allocation and encourage entrepreneurship and innovation, while promoting fiscally sustainable public investment in both infrastructure and human capital.
Leading a more global effort on promoting economic openness in trade and investment will not only be in China's interest, but also in the interests of most other countries. Specifically, how to promote trade and investment in a more balanced and inclusive way will be a very relevant issue for a large number of developing countries. Considering disputes around the Trans-Pacific Partnership and other regional free trade agreements in recent years, this is an area where the G20 can explore possibilities for more global cooperation or even coordination.
Strengthening the resilience of the global financial and monetary system is also an area where more work should be done by the G20, in which China will have a special interest due to the internationalization of the renminbi. Some of the key issues here include progressing with reform in the global financial infrastructure, establishing an extensive, multilayered and adequate global safety net while controlling moral hazard, and promoting a multicurrency international monetary system.
Pushing forward a structural reform agenda pivoting around promoting potential growth and productivity will also be an important area where China's core interests intersect with those of other G20 countries as well as other non-G20 countries. If the G20 can lead on structural reform and set good examples for non-G20 countries, it will also provide strong testimony for the G20's efficacy.
To ensure the G20's work in various areas to deliver solid steps ahead, China could also initiate an agenda on streamlining G20 processes and enhancing the group's effectiveness and legitimacy. There are lots of issues that can be challenged about the status quo; for example, why there is no rotating or selection mechanism for the chair of some working groups, or how to ensure the coherence of the work in different working groups when overlaps are inevitable in most cases. More innovative mechanisms or improvement of existing mechanisms can also be considered to promote policy effort across the board. The peer pressure mechanism, enabled through the Mutual Assessment Process approach to policy collaboration, needs more refinement and better assessment, for which international organizations' technical support is necessary but may not be enough. Beyond the internal pressure mechanism, which is largely opaque to the public, external pressure mechanisms can also be considered, like encouraging more involvement of think tanks in assessments of the relevance, implementation and impact of policy commitments.
Amid a general recognition that the global economy cannot revert to a pre-crisis growth model while productivity growth remains weaker than the pre-crisis period, China can draw from its own development experiences and lead more global effort on promoting economic openness in trade and investment in a more inclusive and systematic way to ensure more opportunities for all, including non-G20 countries. China can also strengthen the G20 structural reform effort by focusing on the market and institutional foundations for higher and more sustainable productivity growth. By contributing to strengthening the G20's role in steering the global economic policy agenda, China can also strengthen its role in the global policy arena.
The author is director of the International Economics Research at Chatham House, an independent policy institute based in London. This article is excerpted from an original version published in G20 and Global Governance
Copyedited by Chris Surtees
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