Illustration: Liu Rui/GT

 

Editor's Note:

The G20 summit, to be held in Hangzhou, China this September, is much anticipated as the global economy is still facing difficulties. What should be done to make Hangzhou summit a success? What role does China play in the global economy? Global Times (GT) reporter Liu Jianxi talked with Tristram Sainsbury (Sainsbury), a visiting fellow at the Chongyang Institute for Financial Studies, Renmin University of China, over these issues.

GT: According to the World Bank, global growth is projected to reach 2.9 percent in 2016. What do you think are the most significant challenges facing the global economy?

Sainsbury: We are not in a crisis, but the global economy faces significant challenges and vulnerabilities. Growth is too low and unemployment too high. As G20 finance ministers and central bank governors recognized in Shanghai, the countries are not achieving growth and employment goals. What's more, since the Antalya leaders summit, downside risks and vulnerabilities have grown. One only has to look at volatile capital flows, commodity prices, geopolitical tensions, Brexit and refugee issues; and these are just the issues that have been prominent already in 2016.

GT: What role is the G20 playing in boosting the global economy?



Sainsbury: The G20 is playing a role, but governments need to demonstrate more political will. In Ankara last September, G20 finance ministers and central bank governors recognized that monetary policy alone cannot lead to a balanced growth.

Yet the global policy mix has, if anything, tilted more toward monetary policy over the past six months. Since the US Federal Reserve lifted interest rates in a much anticipated move last December, all the action has been the other way. The Bank of Japan has launched negative interest rates and the European Central Bank is on course for more aggressive monetary easing. Speculation is rising about further monetary policy easing across multiple G20 nations.

Given the challenges countries across the world are finding in implementing difficult structural reform, part of the solution needs to be demanding support by countries with fiscal space. This support should be targeted toward facilitating the passage of difficult reforms.

Finance ministers did not see eye to eye on coordinated fiscal stimulus in Shanghai. This was not surprising, given the diversity in positions going into the meeting, and the fact there was no crisis to focus minds on consensus.

The G20 did, however, state that it would use all policy tools, monetary, fiscal and structural, to achieve its goals of strong, sustainable, and balanced growth. The implied hope is that governments will individually take the initiative to do more, so policymakers can be confident they would be able to respond to a global shock. China has since taken steps to support demand. More countries need to do the same.

GT: What was the legacy of the Antalya summit?



Sainsbury: An ineffective Turkish presidency last year meant the G20 had limited impact on economic growth and little influence on multilateral and regional governance. This leaves much to China's leadership to reinvigorate the G20 process amid the sluggish economy.

The Shanghai meeting in and of itself is not enough to address complaints that today's version of the G20 is nothing more than a talking shop. But it was able to signal ambition, and Chinese negotiators worked effectively to push the G20 forward on "core finance" areas such as investment, the financial architecture, financial regulation and tax.

GT: What do G20 leaders need to focus on to make this year's conference a success? What are your expectations?



Sainsbury: China should be reasonably happy with a solid start to its leadership year. With just six months to go until G20 leaders meet in Hangzhou, the focus now should be on building on the platform created in Shanghai.

It is still too soon to say for sure what consensus and what specific outcomes will be delivered in Hangzhou. Some things, such as the US ratifying the 2010 IMF quota and governance reforms, have already been able to take place. But the rest of the agenda will be determined in the coming months.

Among the list of actions to look to in the future, as signaled in Shanghai, are a proposed structural indicator system to secure the delivery of the G20's growth strategies by April; IMF reviews on the global financial safety net architecture by April and on the possible broader use of the SDR by July;  support for a proposal to develop a tax platform jointly by the IMF, OECD, UN and World Bank Group, and various actions by development banks and the Global Infrastructure Hub on investment challenges.

GT: Pessimistic voices about the Chinese economy are always heard in the Western media. What is your take on this?



Sainsbury: There are optimistic voices too. It is natural to expect a range of views on issues, particularly among economists.

The key is to focus on the strongest arguments, regardless of whether they are optimistic or pessimistic, so as to ensure that policy decisions are based on the best available evidence at the time they are made.

GT: There was speculation on whether China would reach a Plaza-type accord before Chinese authorities denied they would depreciate the yuan. What is your take on the "currency war?" Which international factors may affect the exchange rate of the yuan?



Sainsbury: A Plaza-style "grand bargain" was speculation, and was not a realistic proposition. Prior to the G20 meeting, China had largely put questions around yuan management to bed when People's Bank of China Governor Zhou Xiaochuan articulated, in rich detail, China's approach to exchange rate management.

More G20 attention in Shanghai went to warding off the temptation for competitive devaluations, but hard action is not expected. Instead, sensibly, finance ministers and central bank governors reiterated previous exchange rate commitments and committed to consult closely on exchange rates.

GT: Zhou suggested in an interview that an international coordination mechanism has yet to be established. What efforts should be made to build such a mechanism?

Sainsbury: Such a mechanism is a very long way off. Focus should be on continuing the challenging process of increasing the international acceptance of the yuan and the associated reforms to a more market-determined exchange rate, capital account liberalization and domestic financial sector reform.