As economy slows, China urges G20 to focus on domestic reforms

G20 leaders had met at Antalya last month and resolved to persist with collective action

China, the host for the 2016 G20 meet and holder of the rotating presidency, urged member countries to pursue structural reforms to spur global economic growth even as the Asian giant’s economy slows. Macro-economic expansionary policies such as monetary easing remain a ‘temporary response’ to the global financial crisis of 2008, it said.

India’s Finance Ministry has initiated consultations on the priorities identified by China for the G20 summit in September 2016, which include constructing a new structural reform index to assess progress by member nations on their target to add two per cent growth to the global economy by 2018 through domestic reforms.

“The Department of Economic Affairs is examining the summit agenda set by China and has sought urgent inputs from different ministries on the priorities that have been proposed for the summit in Hangzhou,” a senior government official told The Hindu.

G20 leaders had met at Antalya last month and resolved to persist with collective action to lift actual and potential growth of their economies and boost job creation. The G20 summit mechanism for economic co-operation had evolved in the aftermath of the 2008 financial crisis.

“Many countries are suffering from a series of unfavourable factors, including anaemic global growth, decline in potential output, increasing volatility in financial markets, weakening global trade and investment, high levels of unemployment and inequalities,” the Chinese government noted, laying out the theme for the next summit.

“Due to growing divergence in economic performance and policy priorities among major economies, we are seeing increasing difficulties in macro-economic policy co-ordination. The world economy calls for a new impetus,” it said, adding that the G20 has managed ‘mainly short term risks’ through co-operation so far.

Protectionist measures

Raising concerns about persistent decline in global trade growth ‘to levels below the global growth rate in the past three years,’ China has questioned the significant rise in protectionist measures adopted by countries in trade and investment and the lack of movement on the World Trade Organisation’s (WTO) Doha Development round of talks. G20 nations account for 80 per cent of global trade volumes.

“Worldwide, regional trade agreements and bilateral investment agreements have flourished…it also results in ‘fragmentation in global trade and investment governance regimes, to which G20 needs to respond,” it noted, urging the G20 to instead to focus on the multilateral trading system based on the outcomes at the WTO ministerial summit in Nairobi that kicks off on Tuesday.

In a separate document drafted by China’s finance ministry proposing a new G20 Structural Reform Index reviewed by The Hindu, it has noted that efforts to maintain financial stability and support economic recovery, since 2008, have helped achieve certain results but structural deficiencies persist that can hold back growth in the long run.

“The expansionary macroeconomic policies mainly focus on managing aggregate demand as the temporary response to the financial crisis. Without solving the deep structural problems, these policies could not reverse the prevailing trends of slow growth in potential output and productivity, and therefore could barely deliver sustainable economic growth,” according to the document.

China has proposed a new assessment system that focuses on aggregate impacts of the structural reform measures undertaken by G20 countries instead of focusing on the progress of implementation. This, it has argued, would provide a more objective and effective evaluation of reforms. In a message after taking over the G20 presidency on December 1, Chinese president Xi Jinping asked: “Can we strengthen the foundation for global recovery and growth and leave the crisis behind us?”

“We should strive to build an innovative, invigorated, interconnected and inclusive global economy and explore new ways to drive development and structural reform, injecting impetus into the growth of individual countries and energising the global economy,” Mr. Jinping said.

China has also said that the prolonged delay in the implementation of reforms in the quota and governance structure at the International Monetary Fund and review of World Bank voting shares ‘jeopardises the credibility of the G20’ and must be pushed.

Officials stressed the need to firm up India's strategy soon ahead of meetings between G20 sherpas (the term used to describe the chosen national interlocutors), finance ministers, central bank governors and top officials to arrive at a consensus communiqué for the G20 leaders when they gather in Hangzhou next September.