The G20 at Five: “New Type of Major Power Relations” and the G20

  2013/9/26 source：

Section I
This Section gives a general assessment of the G20 in the past five years and an evaluation of the St. Petersburg Summit in Russia this summer from the perspective of Asia-Pacific. 

In terms of the latest Summit, the scholar from Russia takes a positive attitude and believes that considerable achievements have been made, particularly in promoting financial investment, job creation, economic structure adjustment and labor market reform. It is certain that a strong and sustainable growth will not be possible if without reforming the labor market and economic structure. Furthermore, it is also believed that the agenda of St. Summit is more focused and makes the goal be more achievable and agreeable.

Scholar from SIIS takes a historical view from the five-year experience and defines the performance with three “REs”, rebuilding the world economic order in the financial turmoil, regulating the financial sector and other economic doings, reforming the economic structure in the domain of fiscal mechanism, labor market, and other aspects in general. As a whole, through the group efforts of the G20, the world economy is showing a promising picture that the US has a beautiful deleveraging, big progress has been made in the labor market of the EU, structure reforming is undergoing in the some emerging countries as well.

Differed from the scholars of G20 members, those scholars from non-G20 member countries also shared their views in the conference. For example, Singapore as an international financial center also has a big concern on the policy issues proposed by the G20. They think that the G20 should care more economic issues rather than political-mixed topics. The St. Petersburg Summit is overshadowed by Syria chemical weapons issue and that makes the discussion less efficient. Nevertheless, it is not to deny the positive effects of the G20 meeting, world leaders coming together in formal or informal ways to deal with issues of common concern.

With regard to the agenda of the G20, experts have different views, some believe that security and other political issues should be removed from the agenda since the leaders have very limited chances and time, while other experts believe that security issue cannot be totally separated from the economic issues and should be in the agenda as well.

Section II
This section is designed to define the implication of the “New Type of Major Power Relations” and elaborate its role in promoting the G20 process. Furthermore, the role of middle powers, some caucuses (G7, BRICS and etc.) has also been discussed. Four experts have delivered their presentations in this section.

In defining the concept of “New Model of Major Power Relations”, a scholar from the US quotes the definition in Chinese Foreign Minister Wang Yi’s speech at Brooking Institute recently, and believes that the principle of “No conflict or confrontation, mutual respect and Win-win cooperation” is mainly composed by China side, rather Americans normally describe it with the norms of” cooperation and competition”. In terms of the working mechanism, the US scholar believes that the caucuses, such as G7 and BRICS, would undermine common goals of the G20.Thus people should pay attention to such problems. The BRICS members met formally and informally, before and during the G20 summit, but the G7 did nothing. The BRICS is progressively strengthened, members singing in chorus, forming their agenda in the G20. Furthermore, the US scholar also points out that the role of middle powers, typically represented by Mexico, Canada, Korea and etc. should be strengthened.

A special focus is given to analyze the economic interaction between China and US, and its role in promoting China-US New Model of Relationship. The S&ED dialogue this July sets a milestone in reshaping China-US economic relations. Fruitful agreements have been made in the fields of free trade and investment. Economic rebalancing is happening between China and US, which is crucial to the global wide rebalancing and sustainable growth. More than that, plenty of other cooperation platforms in various forms have also been implemented between China and US for economic cooperation.

Experts from non-China and non-US express their perspectives on the definition of “New Model” and the role of G20. A scholar from India believes that G20 agenda is still dominated by G7 group, and emerging economies feel the sense of marginalization, even though big progresses have already been made than before. India itself thinks that G20 needs to do realistically in order to deserve the title. Furthermore, the Indian expert also express the view that the role of Asia-6 and BRICS. He believes that Asia-6 in the G20 is not commensurate with its strength, and their role should be strengthened. However, the BRICS is progressing in this regard, that BRICS is by no means rhetoric, but rather a pragmatic cooperation. For example, the establishment of the BRICS Development Banks reflects the collective effects and uprising influence in the G20. With regard to the wording of “New Mode”, the Indian scholar questions the difference between the current “new” and the traditional “old”, and prefers that a multi-polar world is the trend.

Some Chinese scholars articulate the feasibility and future challenges in building China-US New Model of Major Power Relations. They believed that there is a solid foundation for currently political push on the relation between China and US. Some points are listed as follows:

(1) Increased Sino-American economic interdependence. Some new topics, such as environmental protection, climate change, the shale gas revolution and etc. are pushing two sides into closer collaboration.  (2) Broadly expanded cooperation platform. In addition to the G20, other multilateral and bilateral platforms have also been built, including S&ED, businesses and the non-public exchange mechanisms are extremely broad.(3)The principle of “no conflict or no confrontation” has become a common consensus between the two countries and it will make the cooperation be easier. Furthermore, Chinese scholars take a historical and cultural view in articulating China’s peaceful ways and approaches in international relations. However, without doubt, Chinese scholars also acknowledge the possible challenges ahead, such as different security concerns, regional interest conflicts, cultural discrepancy and etc.

In the third cession, the participants talked about world macroeconomic growth and financial stability. Japanese scholar analyzed the effects and risks that Abeconomics might produce. Abeconomics has three arrows, i.e. monetary policy, financial policy and economic growth strategy. If there is the fourth arrow, that is the 2020 Tokoy Olympics. Abeconomic has changed people’s perception about Japanese economy. This is its largest effect. But there are much more supply of money in the market, but the money has not been invested into real economy. Wages and consumption have not increased. IMF has warned Japanese government if economic structure cannot be reformed, a serious risk of inflation will be caused. As for the spill-over effect that Abeconomic brings, Japanese scholar admitted there were conflicting interests between world economy and domestic politics sometime.

As for the problem of American exit from QE policy, American scholar considered the US Fed does not target any currency for its monetary policy, but only target its own domestic development. As for the spillover effect of QE policy, he thought even though the US and Japanese easing monetary policies have some negative spill-over influences, the economic growth of the world largest and third largest economies will bring benefits to other countries. G20 provides a platform to promote conversation about world economy, and every country should coordinate to make world economic growth more balanced.

Chinese scholar pointed out the reason that caused financial crisis was the dollar based international monetary system. Once the US exited from QE, emerging markets will face financial instability. There are three possibilities for international monetary system, i.e., world currency, multi-polar currencies and dollar-based system. The second one is the most practical, for which the internationalization of RMB will be a contribution and direction.  Indian scholar also pointed out, emerging economies’ problems were caused partly by themselves, but mainly from developed countries.

On international financial system reform, Russian scholar pointed out that financial regulations are still at the core of G20 agenda. G20 has made a lot of successes on improving international financial regulations, but there are still a lot of issues to solve. Canadian scholar believes that the MAP is a big success for G20. Collaborative measures on economic growth are needed. We’d better to separate investment bank and commercial banks. This is a major issue worth of discussion. Now shadow banks are playing big roles in Chinese economy, about 25% of China’s GDP. There is controversy about its role, function and risks.

In the fourth cession, the participants discussed the problem of global trade and investment. Australian scholar said that from 2008, Doha round has fallen into stalemate. The biggest achievement for this year’s G20 Summit on trade is its emphasis on transparency on PTAs. Currently, the US leadership is not in WTO, but in TPP and TTIP. There are differences among the two, e.g., the former is more about trade while the latter more about investment, as US and Europe trade relationship is already pretty matured. RCEP has the potential of becoming the largest PTA in the world. But in economy, but it will not be a competitor with TPP, since the two are quite different in approaches and contents. RCEP is a “20th century agreement” focusing on traditional trade issues while the TPP is the “21st century agreement” focusing on issues beyond tariffs, such as domestic regulation. But the above three PTAs may worsen geopolitical competition. Indian scholar expressed his dissatisfaction about the exclusiveness of them.

As to the problem of PTAs and Sino-US relations, Canadian scholar believed China is not permitted to participate TPP now, but China is determined to continue its opening policy. With the China Shanghai FTZ experiment, the liberalization of finance will become a part of it.

Canadian scholar thought in the past ten years, the world trade system has changed dramatically. Now 50% of the world trade is about service and 50% occurs among developing countries. With the proliferation of PTAs, diplomatic interests are brought back to trade relations and trade policies become tools of foreign policy again. TPP, TTIP, and RCEP will pose risks to global governance structure. There are lots of convergences among PTAs. Another scholar pointed out China and US have different interests on signing BIT, i.e., the former more on protection of assets, while the latter more on market access. But another participant added China has become the world’s 3rd largest outward FDI provider and therefore market access is also a key interest for China.

Chinese scholar pointed out EU, the US, and Japan established a lot of FTAs, but with different inerests. The developed countries want to redistribute trade interests by rebuilding rules. One of the aims is to balance the economic influence of China, or to pose pressure to advisories. FTA has geopolitical intention. But it seems that emerging economies are not interested in establishing FTAs between or among them. TPP and TTIP should be more inclusive. As for TPP, China is changing its attitude. China Shanghai FTZ experiment is a national opening strategy instead of a local one. American scholar suggested APEC could consider the issue of integrating TPP and RECE in the long term. Even the G20 should talk about this issue.

Session V focused on “the broader agenda of the G20”, in which participants discussed the criterion for G20 agenda-setting and whether the G20 agenda should expand to issues like development and security.
How should the G20 agenda be set? One participant pointed out first we should see whether it is related to the core mandate of the G20, i.e., “strong, sustainable and balanced growth of the world economy”, such as financial regulation and reform of international financial institutions. Urgent issues like Syria could jump in. But the most controversial are those issues in between. Whether they should be included should be judged based on other factors, e.g., how difficult and how controversial they are and whether they need leaders to discuss. Another participant classified four categories of issues for the G20, the first is what leaders want to discuss, such as the Syria issue, the second are what leaders should or must discuss, such as international development; the third are those that what leaders do not necessarily discuss but could help achieve progress; the fourth are those decorative issues that should be abolished from the agenda. There was another opinion suggesting G20 agenda issues could be classified into two categories, i.e., urgent and long-term/strategic issues. Financial crisis and Syria are the former. There are quite a lot long-term issues and the G20 should only focus on those most important of them.

Should the G20 discuss the issue of development? Participants generally agreed on this point. Reasons include: first, development could not be separated from growth, and issues like food security, financial inclusiveness and human resources are really relevant to the long-term growth; second, development is fundamentally an issue of identity and equity, which relates to the sustainability of globalization; third, G20 needs a “grand bargain”, while the development issue is the one emerging economies in the G20 will buy and exchange interests with developed ones; fourth, although international organizations like OECD, UN and the World Bank have made enormous efforts on this issue, the G20 can play a coordinative role and set direction in this network since development is such a cross issue. There is a participant stressing that security is key for development and the potential of the G20 as a highest level platform for this cannot be excluded. But there is disagreement that issues like Syria basically depend on US and Russia, and should not be put on the table of the G20.

At the same time, participants pointed out that G20 is becoming more and more complex. There are more and more commitments while deliveries are not clear. The 2014 G20 Summit should streamline the process and focus on delivery for the development issue. One participant said the key for the development issue is to find a new consensus beyond the Washington Consensus that is really workable. G20 is only a platform exchanging trust and information and cannot be expected to be an enforcing mechanism.

Session 6 took stock of the one day and a half conference and gave advices for the future G20 Summits. Participants stressed that the G20 for the first time included emerging economies in the process of global governance and established a network of communication at official levels, which are significant for the world economy. However, whether G20 have played its leadership role and realized its potential are worth further thoughts. The G20 next year should reflect on the experiences and lessons of the past five years. Its agenda should not change, and take a “back to the basics” approach, i.e., insisting on the core mandate of the G20 of “strong, sustainable and balanced growth” and discussing those basic issues. It should streamline the process and focus on delivery, maximizing the value of leaders meeting. It should strengthen the “twin track”, i.e., prioritizing leaders’ short agenda while leaving other specific issues to department and official levels and other international organizations.

G20 should focus on providing global public goods, endorse and agree on the results of other international organizations. It should advocate good domestic policies and practices. The next year’s G20 Summit should be the first step to revitalize the multilateral trade system. Development and climate change are critical, but delivery should be the focus. The tax issue has achieved significant progress, but very high level principles need to be translated into actions. OECD is too ambitious; the more practical thing is transparency and disclosure.

There was a participant arguing that the sovereign debt of developed countries was the most important issue and biggest risk for the world economy in the next decades. The debts of developed countries will not be sustainable without the support of emerging economies. US needs an annual growth of 6% to sustain its debt, which is impossible. The G20 needs to find solutions on this. Another participant thought how to transform mess globalization into smart globalization is the key for the G20 and international cooperation, i.e., how to mobilize domestic support for the agreements reached at G20 and other international forums is the most fundamental issue. We should investigate more on those successful cases and try to find lessons for the future.