G20 Summit Prospects

The G20 Summit will be held from September 5-6 in St. Petersburg， Russia. The G20， which became the top international economic governance platform in 2009， has made significant progress in fostering global economic recovery， financial supervision and reform. The current economic situation features complicated changes in developed countries and emerging markets’ growth and recovery. These changes demand that G20 members make greater efforts， especially in policy coordination.

Top agendas

Russia， the chair state of this summit， has chosen a theme of growth and employment. Topics will include the creation of a robust， sustainable and balanced growth framework， employment， international financial institute reform， strengthened financial supervision， sustainable energy， common development， multilateral trade and anti-corruption.

How to push forward the world’s economic growth remains the most important subject of this year’s G20 Summit， as the global economy continues to stumble along the path to re- covery. The International Monetary Fund （IMF） lowered this year’s global economic growth expectation to 3.1 percent in July from a previous estimate of 3.3 percent. As developed countries accelerate their pace of adjustment， some encouraging hints of economic improvement have emerged.

A mild economic recovery trend has prevailed in the United States. Its real estate market is on the rise and the stock market index has met new highs， while the processing industry and service business continuously expand. In addition， the trade deficit and employment situation have seen improvement.

In Japan， the country’s current quantitative easing policy， part of Abenomics， has successfully stimulated the Japanese economy and realized economic growth for three consecutive quarters. The Nikkei stock index increase has topped major global stock markets. The Japanese yen’s exchange rate collapse has led to large-scale export growth， while relaxing previous deflation.

Europe’s debt crisis has returned to a stable state， as its industrial output and market confidence have finally begun to rise. The European economy registered slight growth in the second quarter of 2013， ending the continent’s economic shrinking since 2011.

However， the economic situation of emerging markets has clearly deteriorated. Emerging economies now face many structural contradictions that are hard to solve， such as a high inflation rate， increasing unemployment， inclining balance of international payment， and growing social problems. BRICS members found their economic growth rate in the first quarter of 2013 had dropped to the lowest level since 2009. India has a massive current-account deficit； Brazil is struggling with inflation； and Russia’s energy export has declined. Meanwhile， the stock markets of India， Brazil and South Africa have taken a dive as their currencies sharply depreciated. But China’s economic growth rate has remained at a high level. Its economic structural adjustment has accelerated， domestic demand expanded， employment situation remained positive， while the exchange rate of yuan slightly went up， remaining stable. China is still a major engine of the world economy.

The United States has moved away from quantitative easing， which will be another key topic of the coming summit. The quantitative easing of the United States over the past five years had contributed to economic recovery. The questions of when and how to abandon that policy are dependent on the U.S. Government. Economists generally believe that the U.S. Federal Reserve will start to decrease its Treasury bond purchasing in September， and completely cease buying in the mid-2014. As a consequence， global liquidity will tighten， creating big influences on global economic growth and financial markets. Different countries adopted varying economic policies to fit their economic recovery paces. Therefore， it will be very difficult to coordinate a common economic policy in the coming G20.

It is reasonable to expect the summit to make some progress in employment， financial supervision， international financial reform and common development. The summit will make some achievements in creating green and sustainable job opportunities， enlarging input on training projects toward young people， improving education and training quality， and perfecting social security systems.

The Financial Stability Board （FSB） under the G20 framework has been playing a more and more important role in the international financial supervision field. It is expected that the FSB might become mechanized during the coming summit. Europe and the United States have been strengthening supervision on financial creation. They also will realize regulatory compatibility through negotiations on the U.S.-European free trade area. The two sides might reach a consensus on supervision over shadow banking as well.

The cominptkNL9YFIsm6NZUrpbhOY3m9CAPms1bh+MKZhwZkOB8=g summit will include discussions on development topics， including food safety， labor resource development， financial inclusion and infrastructural facility investment. Russia appeals for financial inclusion construction， focusing on women， immigrants and young people’s access to financial services.

The summit will hopefully make big progress in the food safety field， such as establishing a tropical agriculture platform， and launching initiatives on wheat research and global agricultural supervision.

Although the IMF’s reform on quota and a voting shares plan had been passed on previous G20 references with emerging economies like China and India gaining improved shares， the implementation of such plans has been very slow. For example， the United States hasn’t finished its domestic legislation process of the IMF’s 14th share reform. The G20 Summit will initiate support on the IMF’s structural reform， and then push the IMF to finish its 15th share checking by January 2014.

There will be little progress on other subjects like energy sustainability， anti-corruption and promotion of multilateral trade. Russia， an energy giant and the host of the coming summit， hopes it will draw attention to energy problems. In spite of the clear direction of developing sustainable and green energy， other member states will show limited interest on the complicated energy problem， because the shale gas revolution of the United States has eased tensions on global energy supply to some degree.

Russia suggested setting up an independent anti-corruption institute under the G20 framework. The suggestion sounds rational， as governments have reached a consensus on anti-money laundering and anti-transnational bribery during the past year. But there will be big obstacles when implementing the consensus due to different national conditions.

As usual， the summit will discuss antitrade protection， which mostly benefits developed countries and hurts developing ones. Western developed countries are trying to establish regional free trade areas， like Trans-Pacific Partnership， according to their interests and pressure the development of emerging markets， including China. Developing countries are facing a threat of being marginalized in world trade. This year’s summit might express concerns on the fragmentized trade pattern and functions of the WTO. But it is hard to predict whether there will be a common understanding.

Permanent global focus

After years of continuous adjustment after 2008， developed countries， especially the United States， have made progress on structural reform. Their financial markets have become stable， technology innovation and industry upgrading fastened， with economy basically on track of stable recovery. Once more， they are a major engine of world economic growth， as they have created 60 percent of its current development. However， mounting financial deficits， a high unemployment rate and public debt remain the time-bombs of developed economies.

Developing countries are facing a worsening situation. As the United States stopped quantitative easing， they will come under pressure from capital flight， currency depreciation， unstable financial markets and even social crises in a short time. Developing countries are in shortage of economic growth momentum because they have put too much attention on high-speed growth， but too little on structural reform in past years. Current economic recovery of developed countries is mainly due to the processing industry and export growth， but not to import demand increase of developing countries’ products. Therefore， developing countries might be at risk of an economic slide. Big emerging economies， like India， Brazil， Russia and South Africa， have seen sharp declines， unstable financial markets， sluggish economic growth， but big structural reform pressures. Smaller emerging economies like the Philippines will still be at a stage of rapid economic growth.

It is worth mentioning that China still has a bright future of development. According to economic statistics released in July， the Chinese economy has shown a trend of stabilization. And big international investment banks resumed their regulation of China’s economic growth expectations， showing great confidence in the Chinese economy. China’s status as the world economic growth engine has cemented， and its contribution to world economy will enhance.

The world economy will enter a long phase of low- or medium-speed growth in the post-crisis era. And as a major global economic governance platform， the G20 still has a long way to go.