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Hangzhou summit: China grapples with the G20

Hangzhou summit: China grapples with the G20
Published 2 Sep 2016 

By Tristram Sainsbury, Research Fellow and Project Director, G20 Studies Centre, and Hannah Wurf, Research Associate, G20 Studies Centre.

Hosting G20 leaders in Hangzhou on 4-5 September will be an important test for China. The summit will take place towards the end of an eventful 2016, and at a particularly interesting time for the global economy. 

The IMF recently downgraded its growth forecasts by 0.1% to 3.1% in 2016 and 3.4% in 2017. IMF Chief Economist Maurice Obstfeld said that Brexit 'threw a spanner in the works' of their world economic forecasts. The IMF is warning of significant economic, political, and institutional uncertainty, which could lead to future downgrades.

As noted in the most recent G20 Monitor, despite the best of intentions of governments around the world, growth is low, investment is low, unemployment is high, and there are rising risks as well as persistent and unresolved inequalities. 

This is not a new story. In fact, the latest forecasts mark the 16th downgrade in the IMF's global growth outlook since January 2012. In recent years, the general sense of heightened risk has evolved into more specific, near-term risks. 

The upcoming G20 leaders' summit will take place in the context of Brexit, contentious US presidential elections, rising anti-globalisation and protectionist sentiments, Turkey's attempted coup, worldwide terror attacks, a potential Italian banking crisis, a rocky Chinese economic transition, and ongoing commodity price uncertainty. [fold]

Since leaders gathered in Brisbane nearly two years ago, emerging-market economies have stepped up to host the G20 forum: Turkey last year and now China. Turkey's G20 year was a a bit of a shambles, with poor prioritisation, a constrained bureaucracy, and President Recep Erdogan more focused on security in the Middle East than economic reform. 

From the outset, China's G20 has offered more hope. Lowy Institute Nonresident Fellow Ye Yu has said that China's efforts have been heavily directed towards shaping the world development agenda and bringing a longer term vision to the G20 that aligns with Chinese domestic priorities. China also put the focus back on economics with an agenda that aligned well with the priorities that Australia prosecuted. Growth and structural reforms are on the table again.

China's leaders have prioritised the G20 summit and are keen to use their host year to broadcast a commitment to global cooperation. China has adopted an extensive, technical agenda, while mostly sticking to the traditional economic issues of growth, trade, investment, and sustainable development. 

So, what's new? There is talk about innovation and a G20 'innovative blueprint for growth'. We could see commitments to improve the way we measure innovation, and more R&D and science cooperation, but the tricky issues of intellectual property and global norms around cybersecurity will be left to the side. There has been progress on tax secrecy since the Panama Papers went public. China has also been a vocal supporter of the UN Sustainable Development Goals, although it is unrealistic to expect that the G20 will do what the UN process has failed to achieve: outlining how the 17 goals and 169 targets should be prioritised and implemented. 

China's official G20 documents contain many references to voluntary principles, indices, and cooperation initiatives. We have already seen this from the gatherings of trade, energy, agriculture, and labour ministers this year. There is some genuine progress buried beneath all the technical detail.

But as with all G20 summits, there will be expectations that leaders can agree at Hangzhou to make real commitments to increasing economic growth and building up the resilience of the global economy. So far, in 2016, there has been mixed messages on these fundamental objectives.

The good news is that the world has weathered two bouts of financial instability (China's stock market mishaps early this year and Brexit). But the IMF's latest revisions highlight the fact that the G20's efforts to boost growth have been disappointing. Moreover, the Brexit vote revealed that governments are failing to address the challenges arising from globalisation. Populist politics in the advanced economies threaten future income gains across the globe.

Even with these risks, we are unlikely to see policy miracles in Hangzhou. But with a growing number of commentators questioning the G20's relevance, G20 leaders will need to project a better sense of how 'economic elites' are managing risks and demonstrate that they are talking about the things citizens care about. 

The Hangzhou Summit will also be a test of China's soft power. The G20 is premised on voluntary cooperation among sovereign states. Leading from the front can only get you so far and the flexibility required for skillful summit negotiations is an art form. Many recall Tony Abbott's bungled handling of climate change during Australia's G20 year. 

The Hangzhou Summit is not a stand-alone event. It is the culmination of more than 72 official events this year. Germany will pick up the baton in December and hold their summit in just 9 months' time in June 2017. The formidable Angela Merkel will be at the helm then.

If Turkey derailed the G20, China should put it back on track. But questions remain. Will the G20 provide leadership that addresses global economic challenges and globalisation? What kind of leadership will China demonstrate? What role will leaders themselves play? How will China handle the soft power as host? The Chinese summit will be worth watching.

Photo: Getty Images/Bloomberg



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