Who Will Govern the New World—the Present and Future of the G20

Chongyang Institute for Financial Studies Renmin University of China

• Publisher: Ibidem Press
• Year: 2016
• ISBN:
  9783838269252
• Topic: Politics & International Relations
• Subtopic: Intergovernmental Organizations
• Index: Politics & International Relations

How can the G20 fulfill their role most efficiently in the post-crisis era, and what role do the emerging economies play in the new global economic order? This timely volume provides an overview of the most important challenges ahead for the G20, especially China.

Part 1
Global Governance in the Post-Financial Crisis Era

After the 2008 global financial crisis, the international landscape underwent drastic changes and adjustments. While reflecting on the crisis, nations have been continuously searching for paths that are suitable to their development and that avoid repeating the mistakes made during the process of globalization. After the world entered the “Post-Financial Crises Era”, the developed economies recovered slowly, while growth in major developing economies began to slip. The global economy is now situated in a period of unbalanced recovery. In a new era full of challenges and opportunities, how will the international economy, political structures, and international relations change, and how can the members of the G20 better serve as a part of global governance?

Renmin University of China
Chongyang Institute for Financial Studies
Research Report on G20 Series No. 2

Analysis of G20 Conferences and
Recommendations for the 2013 Leaders’ Summit

He Weiwen

Former Economic and Commercial Counselor, Chinese Consulates General San Francisco and New York, Senior Fellow, Renmin University of China, Chongyang Institute for Financial Studies

The emergence of the G20 Finance Ministers and Central Bank Governors’ Meeting in 1999 was intended to tackle the Asian financial crisis. After the global financial crisis in 2008, it then became the major international dialog platform for multilateral economic strategy. On September 5th and 6th, the eighth meeting of the G20 Leaders’ Summit will be held in St. Petersburg, Russia. The Russia Summit carries great global and strategic significance, and will offer a crucial opportunity for China’s participation in world economic governance. China must make good use of it. An overall evaluation of the status and role of the G20 follows:

I. As a multilateral platform for global strategic economic dialog, the G20 exceeds any other international system or platform. The G20 Finance Ministers and Central Bank Governors’ Meeting has the following characteristics:

1. The number of countries participating in the G20 is adequate for emerging and developing economies to participate jointly. G20 countries (including the EU) are home to 60% of the world’s population and represent 80% of the world’s economy and 90% of its trade volume. Unlike the traditional G7+1 developed nations’ club, there are 10 emerging economies and developing countries in the G20, exactly 50%. Therefore the G20 is authoritative and global. Although APEC, the East Asian Summit (EAS) and Asia-Europe Meeting (ASEM) are all essential, they are regional summits, not global forums.

2. The dialog covers almost all economic and financial areas. Topics include the usual G7 macroeconomic coordination, the international financial system under the management of the IMF and World Bank, stability, governance and reform, the UN Millennium Development Goals, trade and investment liberalization in the WTO, climate change and green development within the UN Climate Conference.

3. Operation of the G20 combines flexibility with execution. The G20 is an unofficial conference, but since it is attended by the leaders of its member countries and has an operational level that includes finance ministers and central bank governors, it also possesses great power of execution. The G20 also includes Business 20, Youth 20, Labor 20, and Think Tank 20.

II. The G20’s weakened role in coordinating countries to stabilize the world economy and financial markets

Previous Leaders’ Summits and series summits have contributed to overcoming the global financial crisis by coordinating national efforts, supervising the turmoil in financial markets, and promoting the revival of the world economy and reform of the global financial system. In the period between 2009 and 2010, when the shock of the financial crisis was severe, the summits had a fairly good effect. With the gradual recovery of the world economy, diverging interests have become more apparent and the role of the G20 has diminished. The 2011 European Credit Crisis dragged down the world economy and increased risk. To solve the issue, G20 central banks individually adopted quantitative easing policies independent of one another. The G20’s future coordination effect will pale in comparison to what existed during the 2009–2010 period.

III. The past achievements of the G20 are generally in line with China’s proposals

1. China’s top leadership, finance ministers and central bank governors have attended previous G20 conferences. They directly participated in global cooperation after the financial crisis, helping to conquer the crisis through a no-effort-spared approach to enhance recovery and governance in the financial system. This kind of coordination is fully supported by China’s policies and proposals. Many of China’s policies and proposals have been received favourably by the G20. For example, China has proposed the increase of voting shares and status for developing countries in the IMF, promoting domestic demand stimulus during the global economic recovery, promoting free trade, anti-protectionism and stability in world exchange markets, enhancing energy conservation and emissions reduction in response to climate change, and measures related to world food security.

2. The final outcomes of past G20 summits, including the outcomes outlined in Leaders’ Statements, are essentially consistent with China’s thinking and proposals. A good example is the 2012 Los Cabos Summit Leaders Statement, which included the “Los Cabos Growth and Jobs Action Plan”. The focus of this plan was on supporting growth, financial stability and global recovery through reform of the international financial system, reform of IMF voting rights and funding sources to strengthen the status of emerging economies. This plan also supported the WTO’s core role in anti-protectionism, supported the completion of the Doha Round, endeavored to guarantee food security to deal with fluctuations of commodity prices, highlighted poverty relief as a core of the development agenda, and advocated for green growth. China has more channels to elaborate its views in all of these fields and establish meaningful relations with other countries through the G20.

3. During the post-financial crises period, significant developments in the Chinese economy have greatly elevated and expanded China’s influence in the world. Successful experiences in vital areas have set positive examples for the G20. For example, at the fifth BRICS Summit in South Africa, President Xi Jinping confirmed a plan to create a Development Bank for BRICS. This plan has made it into the Russia Summit Outline (the foundational infrastructure for multilateral banks).

4. G20 announcements and initiatives unfavorable to China have been relatively mild, and also have greatly differed from unfavorable statements against China made by the United States. With respect to the RMB exchange rate, China has been encouraged to adopt market mechanism reform. With respect to trade rebalancing, the G20 has made general statements about the distinct needs of deficit countries and surplus countries without blaming China. Though China does not entirely agree with the G20’s conclusion on rebalancing, it takes an inclusive attitude.

Limitations of the G20: While the G20 has played an important and irreplaceable role, it also has significant limitations

I. The G20 does not play a decisive role in any of the fields in which it is involved

1. Cooperation on macro-policies for economic and job growth is the internal responsibility of each country. Countries only take action at their own discretion after signing an agreement. The Los Cabos Leaders’ Statement has warned against the “spillover effect” of macro-policies. The Federal Reserve started QE3 two months after the close of the Summit, and announced an orderly exit last month. The announcement shook the stock and currency exchange markets as well as the price of gold, causing enormous amounts of capital to flow back to the US from emerging economies. According to June data from a Boston consulting firm that tracked 45,000 management funds (with a total value of $17.5 trillion), the capital outflow from emerging economies amounted to $19.86 billion, with $5.6 billion dollars just in the last week. This is the largest sum recorded since the firm started its tracking in 1995. From January to May, the net inflow was $18.1 billion. Net outflow reached $1.7 billion dollars at the end of June. Negotiations within the G20 were completely ignored.

2. The IMF plays a more direct role in stabilizing the financial market. The annual meeting held by the IMF and World Bank did not consider the quantitative easing monetary policies of the central banks in the US, Japan, EU and UK as a huge risk. Japan has gone even further with its quantitative easing.

3. Even the IMF and BIS cannot limit government policy. The Global Finance Stability Report issued by the IMF in April pointed out that quantitative easing policies would be beneficial in the short term but the risks would add up in the medium term. The BIS annual report published on June 23rd recommended that central banks quit their easing policies to avoid impeding the growth of world economy. However, UK and EU central banks persisted in easing while Japan accelerated the process.

4. Quota reform in the IMF is not driven by the G20 but by the IMF itself. G20 supports this reform, but it is national governments that play the decisive role. These reform initiatives have not been authorized by the US and other crucial members, so the end result is still pending.

5. Before the ink was dry on the Los Cabos G20 Summit Leaders’ Statement in support of the Doha Round, the US and EU respectively launched the Trans-Pacific Partnership (TPP) and Trans-Atlantic Trade and Investment Partnership (TTIP) negotiations, effectively ignoring the Doha Round.

6. The principle platform for dealing with climate change remains the UN Climate Change Conference, which is struggling to achieve results. In this area, the G20 is just a talk shop.

II. The G20 overlaps with other multilateral systems.

Every area in which the G20 is involved already has an alternative existing mechanism. These mechanisms are decisive in solving problems and should be utilized. With a G20 Leaders’ consensus it would be easy to take actions within the relevant systems. The G20’s role is limited by its redundancy, and its inability to reach a consensus and concrete decisions on difficult projects.

III. The G20 does not represent the interests of the most disadvantaged groups in the world

The G20 consists of major economies, yet the majority of the world is made up of small and poor countries. Although these states account for just a small proportion of the world economy, they represent the majority of the sovereign states. Moreover, they are at the frontlines with respect to the challenges facing the world economy, including the realization of the UN Millennium Development Goals, food security, poverty relief, and climate change. G20 conferences fail to adequately address these pressing matters.

I. The impact of the G20 is increasing in strength.
The main reasons for this are as follows:

1. The evolving “fourth phase” of globalization is the economic foundation of the G20. Under this phase, the information and communications technology base of modern, large scale production will undergo dramatic changes. The “economic boundaries” of countries will become increasingly blurred, and the production chains between developed countries and emerging economies will be homogenized. Coexistence and cooperation among countries will also increase.

2. The most vital factor governing the global economy is still finance. The operation of world financial systems is strongly related to daily coordination and risk. World financial governance will be a focus for quite some time.

3. Climate change and food security threaten the interests of all humanity. UN systems are huge and inefficient, demanding the creation of platforms among major nations to coordinate actions. These platforms act as a bridge linking the UN with respective nations.

II. Recommendations for China’s Participation in the G20

1. Maintain a low profile and be pragmatic. China does not need to advertise to get the attention of the world, but it should recognize that most of the world’s economic administrative power and speaking rights will continue to reside in the hands of the United States and other developed countries for a long time. China should work to realize the goal of strong, balanced, and sustainable growth in the global economy.

2. Attend all G20 activities to the greatest extent possible. This means gaining an understanding and knowledge of the world and the main trends in national economic development. Through participation in G20 activities, China can learn how to manage risk, enhance its familiarity with and monitoring of economic governance, and improve its national position. In addition to attending all the G20 Finance Ministers and Central Bank Governors’ Meetings, Business 20, Youth 20, Labor 20, and Think Tank 20 meetings, China should promote a “G20 Plus” that includes consultations on important issues at the working think tank level within the G20 framework.

3. China should propose realistic policies and programmes and take a leading role in the process. China could advocate for the foundation of a G20 infrastructure information platform and a G20 secretariat.

4. Take advantage of IMF voting...

Table of contents

• Cover
• Table of Contents
• All in the Same Boat
• Building an International “Great Finance, Great Cooperation, Great Governance” Platform
• China will be the World’s Largest Economy by 2025
• G20: Innovation of Global Governance in the 21st Century
• Part 1 Global Governance in the Post-Financial Crisis Era
• Part 2 The Role of Emerging Economies
• Part 3 China’s Development and the G20’s Future
• Part 4 G20 Think Tanks: Joint Statement
• Copyright