How to Assess China’s G20 Presidency

Xijinping G20Noe van Hulst, Ambassador of the Netherlands to the OECD

It was a unique event, for sure: China hosting its first G20 summit in Hangzhou on 4-5 September. The city where Chinese leader Mao Zedong half a century ago regularly met with Third World guerrilla leaders to discuss the battle against US “imperialism”. China has come a long way since then, now leading the G20 push to escape from the “low-growth trap”, stalling globalization and the tide of rising protectionism. With growth persistently too low and trade even lagging this low rate, it is time for more decisive policy action. The overall result in the final communique has been coined The Hangzhou Consensus: linking a vision based on innovative, sustainable economic growth and a well-balanced policy mix with forcefully tackling inequalities and promoting an open global economy.  It is encouraging to see China make the case for a rules-based global system of open trade and investment. Of course, this commitment also should have important consequences for domestic policies in China, as well as in other G20 countries. In this context, it’s a remarkable step that G20 leaders have now agreed to tackle the excess capacity in the steel market.

What was striking in China’s approach to the G20 presidency is the welcome focus on medium- and long-term structural economic policies, in combination with an orientation on policy-action. Trade and investment moved up on the policy agenda, resulting in a G20 Strategy for Global Trade Growth and G20 Guiding Principles for Global Investment Policymaking. Completely new was the emphasis on innovation, digital economy and the New Industrial Revolution, nicely brought together in a G20 Blueprint on Innovative Growth. In addition, there was a drive to deliver an Enhanced Structural Reform Agenda, identifying priority areas for structural reforms and monitoring a new set of quantitative indicators.

As always, implementation will be key, especially on reversing adverse trends in trade, investment, structural reform and Internet control. Although these elements were in my view the most remarkable, of course many other policy areas have also been advanced:  taxation, finance, employment, entrepreneurship, sustainability, energy, green finance and climate change. The announcement by both China and the US of their ratification of the Paris Agreement on Climate Change was widely welcomed as an important step in the transition to a low-carbon economy.

Another remarkable factor about China’s G20 presidency is the continuing important role of the OECD Secretariat. Although China is not a member of OECD, it nevertheless relied substantially on the analytical support and assistance of the OECD Secretariat in a substantial number of key areas, e.g. innovation, trade and investment, structural reform, employment, inequality, green finance and taxation. This can be interpreted as an important sign of appreciation for the quality of the work. We can observe a welcome rapprochement between China and the OECD Secretariat, as well as with the IEA in the energy field. The OECD Secretariat also showed laudable flexibility and adaptability in responding timely to the G20’s call to pull together a new Inclusive Framework on Base Erosion and Profit Shifting (BEPS), which now has 85 countries, including many developing countries, committed to the BEPS roadmap.

Of course, much work is still ahead of us. Apart from the existing work streams, the OECD is tasked with taking forward the work on innovation/digital economy, overcapacity in the steel market (within a new Global Forum led by OECD) and designing tax policies for inclusive growth, among other things. The Netherlands views the supporting role of the OECD Secretariat in the G20 as very useful, as it provides non-G20 OECD countries an important window on and bridge to the G20.

Where is the G20 heading? Created as a mechanism for crisis management, it is now moving in the direction of a “steering committee” of the global economy. China’s emphasis on medium- and long-term structural policies has been helpful in this respect. Some observers express disappointment with the G20’s effectiveness in the face of persistent weak growth and a widely proliferating G20 agenda. This is partly understandable, in particular where it comes to insufficient implementation of agreed G20 commitments, like on trade and structural reform. That’s why structural policy measures following the 2014 G20 commitment to raise global GDP by an additional 2% by 2018 have so far only resulted in 1% according to OECD and IMF calculations. And it has been widely reported that G20 protectionism has been on the rise, contrary to what has been agreed. However, as the G20 expert Tristram Sainsbury (of the Australian Lowy Institute) says: “if the G20 did not exist, we would have to invent it”. With so many global problems requiring coordinated collective policy responses or new global standard-setting, not even big countries can go at it alone. At the same time, it is in the G20’s own interest to find constructive channels of engagement with non-G20 countries, some of whom are at the vanguard of policy innovation, implementing first what later often becomes mainstream in the rest of the world.

After the successful G20 summit in Hangzhou, we already start looking forward to the German presidency of the G20 in 2017. We would expect Germany to further advance the G20 attention for structural policies, including on topics like the digital economy, health care and responsible business conduct in global value chains. Undoubtedly, the OECD Secretariat will again provide the presidency useful analytical support. Wir werden bald sehen!

Useful links

OECD to help put innovation at heart of G20 global growth strategy

OECD and the G20

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