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China Can Make the G20 Matter

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The G20 Summit Will Kick Off in Hangzhou Next Week
The world economy can’t grow without China. And China can’t continue growing unless the rest of the world does. This recognition of mutual dependence was the key theme that emerged last November in a discussion in Beijing between China’s President Xi Jinping and members of the Berggruen Institute’s 21st Century Council.
 
As Ernesto Zedillo, Kevin Rudd and Larry Summers pointed out at that session, the G20 -- which brings together advanced and emerging economies representing 85 percent of world GDP -- is the one global body capable of addressing this shared challenge. As host of this year’s summit President Xi fully agreed, saying he wants to “cement” the role of the G20 as the governing body which coordinates common policies that foster global growth.

The world economy can’t grow without China. And China can’t continue growing unless the rest of the world does. 
 
Other Chinese officials have echoed Xi, arguing that the G20 should shift from being a “fire brigade” that only responds to economic emergencies, like the 2008-2009 financial crisis, to a strong proactive institution that can sustain long-term growth initiatives year on year.  The way it is now, the setting of the annual agenda depends on the priorities of the rotating host without the continuity over time required to be effective. The discontinuity and lack of follow-up between summits has been so great that Al Gore once called the G20 “clothes without an emperor” in a snide allusion to the stilted group photos of business-suited leaders who rarely rise to the occasion. 

We followed up President Sarkozy’s idea of a permanent secretariat that would serve an executive troika – the previous, current and future chairs of the G20 – thereby ensuring both institutional strength and continuity. 
 
At the 2011 Summit in France, then-President Nicolas Sarkozy proposed the establishment of a permanent secretariat similar to the United Nations in order to enhance the group’s weight and impact.  China supported that proposal, which was not successful at the time, and is expected to recommend it again this year. Meeting in Mexico City in 2012 in tandem with the summit hosted then by President Felipe Calderon of Mexico, the 21st Century Council made two organizational recommendations. First, we followed up Sarkozy’s idea of a permanent secretariat that would serve an executive troika – the previous, current and future chairs of the G20 - thereby ensuring both institutional strength and continuity. The former French president is now a member of the 21st Century Council. Second, we proposed that the G20 link up with subnational networks at the provincial and municipal levels to enable a decentralized implementation of climate change policies and not just rely on annual summits of top leaders. 
 
Beyond Monetary Easing
 
The substantive agenda this year will concern ways to invigorate economies beyond exhausted monetary policy which has reached its limit, unable to move the needle on stagnant or weak growth around the world. After our November meeting in Beijing, President Xi’s top economic adviser, Lu Hei, asked a committee of the 21st Century Council – Gordon Brown, Ernesto Zedillo, Gordon Brown, Larry Summer, Michael Spence, Fred Hu, Mohamed El-Erian, Pascal Lamy, Joe Stiglitz – for advice on the upcoming agenda.

New wealth and sustained growth can only come from investment in human capital and the innovation of industry
 
The advisory committee’s recommendations focused on complementing monetary easing with fiscal stimulus such as government investment in infrastructure and education as well as structural reforms, from opening up markets in services to labor market reform that would enable young people to find work. It also recommended promoting innovation through the application of new technologies to industry. Addressing the “inequality trifecta of income, wealth and opportunity” in both advanced and emerging economies was also emphasized. 
 
By all indications, the Chinese hosts agree with the direction of this advice, not least of all because it fits within the trajectory of their own Five Year Plan announced late last year to revive growth and avoid the middle-income trap. China’s leaders recognize that the export manufacturing model which has resulted in the high-growth rates of recent decades due to massive inputs of labor and capital has about run out of steam. New wealth and sustained growth, they now understand, can only come from investment in human capital and the innovation of industry through the application of information technology.
 
At our November meeting, Vice Premier Zhang Gaoli, the Politburo Standing Committee member in charge of the economy, laid out the comprehensive dimensions of the plan that will guide China’s development over the next half decade. The new buzzwords in his presentation were “entrepreneurship” and “innovation.” Zhang envisions linking up China’s manufacturing and infrastructure through the resource and logistical efficiency enabled by the “Internet of Things” — what the Chinese call “Internet Plus.” 

The principal aim of the conclave under Xi’s chairmanship will be to explore more efficient growth models through innovation
 
Indeed, the theme China has chosen for this year’s summit is “Towards an Innovative, Invigorated, Interconnected and Inclusive World Economy.” The principal aim of the conclave under Xi’s chairmanship will be to “explore more efficient growth models through innovation, improved global economic and financial governance, stronger international trade and investment, and inclusive and interconnected paths of development.” 
 
Not insignificantly, Hangzhou was selected as the site of the G20 Summit because it is the showcase home of Alibaba,  China’s top world-class new economy company founded by Jack Ma and Joseph Tsai.
 
China’s emphasis on addressing the long-term, interrelated causes of weak global growth will make this the most important G20 summit since the 2008-2009 gathering chaired by then-British Prime Minister Gordon Brown. The coordinated stimulus policies agreed at that time saved the world from depression. The hope this time is that China’s leaders, who oversee the world’s second largest economy, can convince the rest of the G20 nations to agree on a path out of the prolonged slump that afflicts the world as a whole.

Nathan Gardels is editor-in-chief of The WorldPost and Executive Advisor to the Berggruen Institute.