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China and the G20

Popularity 2Viewed 7344 times 2013-4-9 16:48 |System category:News| China

Wang Ying & Li Jiguang
Because of the global financial crisis, the G20 has become the most dynamic and influential institution of global economic governance. Countries have high expectations for the G20. U.S. President Barack Obama declared on September 2009 at the Pittsburg Summit that the G20 will permanently replace the G8 as the dominant forum for global multilateral economic coordination. U.S. political researcher Stewart Patrick said he believes that this is the most significant initiative in global governance since the establishment of the WTO. Former U.S. statesman Henry Kissinger said he believes that the G20 will become an important platform to deal with international affairs in the coming decades. Though the G20 has played an active role in dealing with the global economic crisis, there have been increasing doubts about its legitimacy and effectiveness. Once the global economic crisis has been resolved then the body’s future becomes uncertain. As China is an active participant of the G20, we should comprehensively evaluate the role of the G20 and consider what we can do to safeguard China’s national interests with respect to the G20.
In today’s globalized society, it is important to discuss China’s role in the global governance system. Former German ChancellorGerhard Schroeder invited China in 1999 and 2000 to join the G8. China rejected both invitations. It was not until 2003 that China participated in the non-formal Evian summit for North-South leaders in France. Before and after the summit, Chinese academics said that the country should stay in close contact with the G8, but it was not necessary to join. Their main worries were that ideologically, the G8 was a club for rich Western countries; that it might render the UN a mere figurehead; and that China’s participation might injure its status as a developing country and harm China’s relationship with other developing countries. The then Chinese government attached importance to the role of the G8, but it would not join such an exclusive club. It did not want to take on responsibilities that exceeded its national strength.
Since 2005 when China successfully hosted a G20 meeting, the question has changed from whether China should join the G8 or not to if China did join the G8 would it be conducive to preserving its national interests and what benefits would it bring to the country. This change has happened because the country has become markedly more confident. AsChina gains more experiences in handling international affairs, it has come to realize that it might be advantageous for it, especially in facing the challenges brought about by economic globalization, if it joins these elite clubs. In the following years, China has kept close contact with the G8 but has remained cautious. Furthermore, as the G20 becomes stronger, it looks even less likely that China will join the G8. China also is indifferent to other GX groupings, such as the G2, G4, G3, etc.
The G20 is gradually replacing the G8 in terms of international economic governance. China takes a very positive attitude towards the G20, in contrast to how it has viewed the G8. Since 1999, China has participated in all meetings of the G20. October 15-16, 2005, the Seventh Financial Ministers and Central Bank Governors meeting was held in China. Chinese President Hu Jintao said then that: “The G20 mechanism includes as its members the primary players of both the developed and developing countries as well as those in transition. Measured by population size, they account for two thirds of the world total; by GDP, it is over 90 percent and by foreign trade, 80 percent. All this makes it a widely representative and influential international economic forum” To cope with the international financial crisis, G20 meetings were upgraded to summits. From 2008 to 2011, Hu Jintao not only attended all the summits, but also made important speeches at them to explain China’s positions on global economic governance and proposed a series of measures to deal with the financial crisis. As Chinese politician Dai Xianglong said: “As one of the founding members of the G20, China has not only witnessed the organization’s development, but it has participated in discussions on various issues”. China believes that the G20 is an important platform for global economic governance. Chinese leaders attach great importance to the G20 and make sure their opinion is heard at the group’s meetings. Chinese academics also have high expectations for the G20 and hold heated discussions on the group’s status and prospects, G20 institutionalization and rules, and how China can play a more active and constructive role in the organization. The mainstream view is that the G20 has become the primary forum for international economic cooperation. But is only one of several alternatives and its status is not certain. Consequently, China should try to play an active role in G20 activities but it should also not “put all its eggs in one basket”.
There is nothing odd about China’s positive opinion of the G20. Just as a Chinese scholar has commented: “The birth of the G20 is a timely gift to the Chinese government. China wants to closely cooperate with the G8 but does not want to become a member”. Of course, the deeper reason is that China’s interests are better served by the G20 rather than the G8. This can be explained as follows:
First, in terms of economics. China needs a dynamic, stable and development-oriented international economic system. The outbreak of the international financial crisis and the recent unstable world economic situation reveal the inefficiency of traditional international economic coordination mechanisms. This is not in China’s national interests. The laudatory performance of the G20 in coping with the financial crisis has shown its potential to change this situation. In terms of international trade, the current mechanism is not stable and also is not in China’s economic interests. According to a WTO monitoring report, export barriers are on the rise, anti-dumping and anti-subsidies and technical barriers to trade are also increasing. Meanwhile, global trade liberalization has stalled. There are no signs of any agreement for the Doha round of negotiations even after more than ten years. This has seriously undermined the authority of the multilateral trade mechanism. Along with the slow recovery of the world economy, China’s exports growth rate has been sluggish and its national economy has been affected. This has made it more difficult to adjust its domestic economic structure and shift its economic development model. The emergence of the G20 has provided a platform to promote the establishment of a “development-oriented” global trade mechanism. In fact, in all the previous G20 summits, combating trade protectionism, supporting the Doha development agenda and stabilizing the world economic and trade situation have been key subjects on the agenda.
In terms of international finance, currently existing institutions and systems have proved to be extremely unstable and they cannot safeguard the interests of the developing countries. The outbreak of the financial crisis revealed the contradiction between globalization of the U.S. dollar and sovereignty of the U.S. dollar. Since the dollar remains the chief global trade and reserve currency, its globalization has only deepened and the sovereignty of the U.S. dollar appears unshakable. The only way to stop another global financial crisis is to restrict the U.S. dollar’s hegemony, increase the use of other currencies, and strengthen the supervision of the flow of national assets. The financial crisis also exposed the deficiencies of the current international currency and financial systems as well as the difficulty of achieving reform under the current voting rights system. The emergence of the G20 has changed this and helped to change the voting rights systems of the IMF and the World Bank. For example, the final joint communiqué of the G20 Cannes Summit stated that: “We have made progress in reforming the international monetary system to make it more representative, stable and resilient.”
In terms of energy resources, fluctuations in bulk commodities, such as food and energy, causing high prices has posed a new threat to the world’s economic recovery. This shows that the international community has not been properly supervising the financial derivatives market and there has been inadequate coordination between producing countries and consuming countries. As China has become a primary energy importer, it needs a stable international energy market. However, there is no effective international mechanism that can guarantee China’s economic interests. The G20 member states are the main producers and consumers of bulk commodities and raw materials. The G20 meeting, therefore, is an appropriate venue to solve these problems. For example, the Cannes summit focused on the fluctuation of bulk commodities. At that summit, China put forward three suggestions and the joint communiqué also said it would look at ways to “improve the regulation and supervision of commodity derivatives markets.”
In terms of keeping international order, China needs a platform from which it can play a positive role. Over the past decade, especially after its accession to the WTO, China has had more and more of a say in global economics because of its rapid GDP growth, illustrious performance in foreign trade and foreign exchange reserves. Its international status has also been improving. China needs to actively participate in the shaping of the international order so that it can develop peacefully as a nation and become a world power itself. Group governance is a new trend. For example, under the framework of the UN, there is the G4 (Japan, India, Brazil and Germany) whose members are hoping for permanent membership of the UN Security Council. There is a group of countries that share the same views on human rights; there is an umbrella group focused on climate change and there are BRIC and the G3. There are approximately 20 discussion groups in the WTO,“Groups in the WTO,”and nearly all WTO members are also members of one or more of these groups. China has joined all the other GX groupings, except for the G8, and played an indispensable role in them. It is also likely that it will play an even bigger role in the G20. It would be important for China to do so if it wishes to influence the shaping of a new international order. The G20 is a more legitimate and effective body than others. To some extent, good global governance means seeking a balance between representativeness and the number of members. This is what makes the more inclusive UN and G33 inefficient. Some scholars believe that the G20 has hit the balance between manageable size and legitimacy. Meanwhile, globalization means that global governance has to be more representative. Population growth and economic development mean that global governance should lie more in the hands of the emerging nations and less with the G8 members. When considering values, China needs an international mechanism that matches its own status. China’s foreign affairs policy has always stressed equality between nations and mutual benefit. China should continue to interact with the developed nations on an equal footing. The G20 provides such a level platform. If China joined the G8, or the G8+5, it might not have the same equal footing. On the other hand, China has complex interests and multiple identities. By staying faithful to its identity as a developing country, China can properly handle its relations with the developing and the developed world. China should maintain this identity not only because it is based on facts, but also because it is politically anddiplomatically advantageous to do so. Although it is the world’s biggest developing country, its economic strength ranks the second in the world and this means that developed countries do not consider China as a developing country, as is shown in its WTO accession agreement. Furthermore, as far as economic interests are concerned, China’s interests are more in line with those of the developed countries, for example, trade liberalization. China should stand with the developing countries but it should not distance itself from the developed nations. Unlike the G8 and the G8+5, the G20 is culturally and geographically inclusive, incorporating major emerging economies. This will help it strike a better balance between the North and the South.
Fourth, in terms of dealing with global issues, China needs a more extensive stage. Globalization means that countries are increasingly dependent on each other in the fields of economy, politics, society and culture. There are now many global issues, such as the environment and resources issues, climate change, the gap between the North and the South, and the economic crisis. As a global issue, the economic crisis should be solved by the countries of the world. China’s role in the world economy is growing bigger daily as is its willingness to participate in resolving global issues. China’s foreign policy should also advance with the times. Traditionally, China has attached more importance to bilateral relations. However, practice has proven that bilateral diplomacy is no longer an effective way to discuss global economic issues. Take the example of the Fourth Round of U.S.-China Strategic and Economic Dialogue held in May 2012. Major topics discussed included monetary policy and economic structural adjustment, the multilateral trade system and investment facilitation, financial market stabilization and the supervision of bulk commodities. Few agreements were made on these global issues. In fact, even though all previous U.S.-China strategic and economic dialogues dealt with “global, strategic and long-term” problems, the outcome was always less strategic and less global. More specific issues have focused on negotiation of market access, especially in economic dialogues. Global economic issues can be better discussed in a multilateral framework such as the G20. After all, countries discuss “global, strategic, long-term and macro economic issues” within the framework of the G20, focusing on the long-range nature, stability and perdurability of multilateral trade and economic relations. Moreover, the G20 framework can combine the multilateral with the bilateral. In previous G20 summits, bilateral meetings come first before the plenary session. This can maximize the effect of the multilateral platform. In summary, China can take advantage of specific international events, public opinion, and its negotiating skills to meet with the emerging countries and with the developed western world. Some foreign scholars have also concluded that China would benefit more from the “multi-lateralization of bilateral disputes”.
China’s participation in global economic governance and its joining of the G20 are both moves aimed at achieving its national interests. Therefore, China’s next focus should be to promote the G20 to move in a direction which favors its interests.
First, it should define the orientation of the G20. After the financial crisis, many international scholars have sounded pessimistic about the G20. They believed that during the crisis, countries worked well together, but once the crisis has been resolved then the G20 will not be able to achieve much. Anders Aslund, a senior fellow at the Peterson Institute for International Economics, wrote an article titled “The G20 must be stopped” in the Financial Times on November 26, 2009. Some Chinese scholars also believed that the future of the G20 is uncertain and it is premature to expect the G20 to become the dominant architecture for future global economic governance. Since China has chosen the G20 as the primary platform for global economic governance, it must now promote the G20. Realistically, being so new, the G20 cannot challenge or take over the old order. Nor can it go up against or replace the other many newly-established multilateral institutions. There are three reasons: One, as the products of the decade-long zero-sum game between the developed and the developing countries, the three big traditional international economic organizations are the cornerstones of the post-war international economics system and they still play an important role in world economic development. Two, the developed countries chose the G20 just as one of the alternatives and they will continue to create different forms of multilateral mechanisms. Although the G8 faces serious challenges and it cannot reflect the new changes in global economic and political structures, its role and influence cannot be underestimated, nor will it easily give up power. Particularly, the U.S. believes that the G20 mechanism is hardly perfect. It wants to keep the G8 in good working order as well as retain the option to use other GX groupings. It is very likely that the G13 or G14 proposed by France may exist in other forms. Three, the G20 covers rules on finance, trade, energy and bulk commodities, and the environment. They are the core regulations of the traditional international economic system. Since the G20 is not a mature grouping, agreements reached by the G20 need the cooperation of other institutions for their implementation.
G20 summits are top political meetings and they attract global attention. The G20 is the most suitable body to sit at the top of the “pyramid” structure of global economic governance. Consequently, we can describe the G20 as a “decision maker with the IMF, World Bank and the WTO as policy implementers”. In this way, the G20 gains more legitimacy because it works with more international organizations and is more effective because it breaks down the deadlock of multilateral decision-making. China should try to influence other international economic mechanisms through the G20. For instance, in the field of international trade, China should continue to support the G20 in promoting early accomplishment of the WTO Doha round of negotiations. In the financial field, China should support the G20 in promoting initiatives on the reform of the international financial system, including IMF voting system reform. China should support the reform of the international monetary system via the G20 platform; set up a stable, reliable, more extensive international reserve currency system; support the supervision and reform of international finance; support initiatives to strengthen supervision of cross-border capital flows; and promote the healthy development of global financial markets and banking systems. In the fields of international energy and the environment, China should urge the G20 to promote the establishment of a fair international energy order and comprehensive, balanced and restrictive international environment regulations, support the G20 in discussing energy and environmental issues, strengthen policy coordination between various countries and cooperate with other members.
Second, China should promote the institutionalization of the G20. As a primary global economic governance forum, the transition of the G20 from a loose forum to an institutionalized organization is in line with China’s national interests and strategy needs. China has high expectations for the G20. This is closely related to the structure of the G20 and with how it has had good results in dealing with the international financial crisis. For China, the financial crisis gave it an opportunity to play a bigger role in global economic governance. Therefore, China should actively promote the institutionalization of the organization by using this advantage. On the other hand, the institutionalization of the G20 can make sure it does not just engage in empty talk. Currently, the G20 is not a standing body with an association charter, so that there is no binding force. Consequently, the institutionalization of the G20, from the current “crisis response mechanism” to a “permanent body”, is the key to its successful development.
G20 summits have been fairly consistent in keeping to topic. And this is an important driving force towards the institutionalization of the G20. China suggest setting up a team of experts to formulate an action plan and timetable to make sure that future topics are consistent so as to make the G20 a viable venue to coordinate policy and solve problems.
Key for achieving institutionalization is the establishment of a permanent executive body, or secretariat and choosing a venue. It should not be in a G8 member state as that is not reflective of the will of the emerging countries and current global political and economic trends. The U.S. and Europe would not agree for it to be set up in China. Besides, China should keep a fairly low profile. China would be happy to see it established in South Korea. There are five reasons why this so. First, South Korea is strong willed and has a strong capacity. Two, South Korea can serve as a bridge between the developing and developed countries (it’s not a G8 member, but it is a member of the OECD). Three, China can exert influence if it is based in South Korea, but it could not if was based in other developing countries, such as Russia, India or Pakistan. It should not be in a small and weak country that is easily controlled by the U.S.. Four, South Korea is dependent on China economically and geo-politically. Five, even though it is an independent country, South Korea will not be able to dominate it. After all, the G20 is the zero-sum game for great powers.
Third, China should prepare topics for discussion at the G20 that are in line with its national interests. The range of topics has grown ever wider, a trend which began before the leadership summits were introduced. In previous summits, topics have ranged from the financial crisis to climate change, the food crisis to the energy crisis and development assistance. They have recently tended to focus on domestic economies such as trade policy and financial institutional arrangements. Not everyone is happy about this trend. Canadian political scholar Barry Carin believes that “the G20 should limit the agenda to financial crisis issues and contain the inevitable pressures to broaden the agenda”. Stewart Patrick thinks the agenda should be limited to pressing issues that require leaders-level attention from the most powerful countries in the world, developed and developing, including issues in the fields of development, climate change and energy, peace and security. However, if the agenda is limited, it would be inflexible and deadlocks would be frequent. Whereas a wider agenda might end up in the summit losing focus and failing to make any breakthroughs.
China should try hard to set the agenda and to prevent it being controlled by the developed countries. For example, judging from the agenda, the G20 Toronto meeting was more like a G8 meeting. All the speakers on financial supervision were representatives from the developed countries. The developing countries’ concerns were ignored. Research on the G20s policy orientation over the last decade has shown that it is almost identical with that of the G8, reflecting actual control of the G20 by the developed countries. Rules are being set by the G20 but at the initiative of the developed nations and it is hard for the developing countries to exert any influence. Since there is no secretariat, the sponsoring country plays an important role in agenda-setting. Therefore, China should recommend more developing countries as sponsors for the G20 summit meeting; and it should also strengthen its communication with the sponsors and try to influence the agenda that way. Firstly, the agenda should be confined to the fields that are closely related to economic governance such as trade, finance, energy, the environment and development and not be expanded to anti-terrorism, immigration and social stability issues. Two, China should confine the agendas to those topics that can easily get wide support from member states and that put the U.S. on the defensive, such as the reform of the international monetary system and global financial supervision to preserve national financial security. Third, China should prevent any anti-China coalitions from forming on specific issues, such as alliances on “anti-trade surplus” or an alliance of “urging the reevaluation of the Chinese yuan”.
China should also clarify its priority issues in the G20, and seek support for them from a majority of G20 members. Currently, there are two priority issues: one is to combat trade protectionism. China should promote global trade liberalization and the facilitation of the Doha round of WTO negotiations. The other is to actively promote development issue.. First, China should insist that it is regarded as a developing country. This gives it a role in working with other developing countries in promoting the collective right to have their voice heard. It is also advantageous for China and helps it carry out economic diplomacy. Third, promoting the development issue within the framework of the G20 provides a good opportunity for China to carry out its foreign aid strategy based on mutual benefit and collective wins. China can suggest the setting up a “G20 development fund”, and China and can make good use of its enormous foreign exchange reserves to carry out economic diplomacy. South Korea proposed setting up an infrastructure fund for the developing countries at the G20 Seoul summit, raising the expectations of many developing countries, especially African nations who are now working on constructing infrastructure for their energy network in preparation for the fund. China should actively promote this “infrastructure fund for developing economies” and persuade the wealthy nations to donate to the starting fund with the World Bank running specific operations.
In summary, China should be aware of the changing world order and adjust its policy in line with this. With economic globalization, global economic and political structures have been changing. Decentralization and interest diversification have also been taking place. “Groupism” has become prominent. China is a relatively powerful member in the G20 among the emerging economies and rising in status, but it is not yet a leader. China should unite with other emerging countries to play a constructive and balancing role in the organization, while bearing in mind that “big groups” and “small groups” compete and cooperate in the G20, China should actively set up or join small groups and seek “common interests”.
(translated by Zhao Jinfu)

(Opinions of the writer in this blog don't represent those of China Daily.)




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