G20 and Transformation of Global Economic Governance

PANG ZHONGYING

Professor, School of International Studies, Renmin University of China, and Qianjiang Sscholars Distinguished Professor, Zhejiang Normal University

LIU JINGWEN

From School of International Studies, Renmin University of China

GlOBAl ECONOMIC GOVERNANCE

G20 and Transformation of Global Economic Governance

PANG ZHONGYING

Professor, School of International Studies, Renmin University of China, and Qianjiang Sscholars Distinguished Professor, Zhejiang Normal University

LIU JINGWEN

From School of International Studies, Renmin University of China

The Group of 20 (known as G20) was founded in Germany in 1999 with an aim at handling international financial crisis, in particular preventing a regional crisis from spreading and becoming a bigger one. It is unfortunate that this meeting mechanism (forum) designed for tackling future impact has to play its role. The US and Europe both witnessed an unprecedented financial crisis with severe global impact in 2008, after which the governments of the US and European countries (especially the EU Central Bank) as well as G7 unanimously held that G20 is the one and only effective platform for international cooperation in dealing with global financial crisis. Based on that consensus, G20 was elevated to an annual gathering of state leaders, i.e. the G20 Summit.

G20: A MAJOR FORUM FOR INTERNATIONAl ECONOMIC COOPERATION

It is very important to carry out textual studies on the communiqués and declarations of G20 since 2008. These studies will allow us not only to know what G20 advocates and what it has done, but also to find the changes of the main topics within less than ten years of the G20 summits. In the “postfinancial crisis” era, since the G20 member states have failed in achieving possible progress on the in-depth coordination of macro-economic policies of all countries which is fundamental to global economic governance, the main topic has been changed to the world economic “recovery” and “growth”which is easier to reach consensus.

Throughout the history of international economic cooperation, the 2009 Pittsburgh Summit was of great significance. During this Summit, G20 was defined as a “major forum for international economic cooperation”among the major economies in the world; quantified reform objectives of the World Bank and the International Monetary Fund were preliminarily confirmed; a “strong, sustained and balanced growth framework” and a mutual evaluation process were kicked off; and important consensus were reached on the institutionalization of G20 summit of state leaders. Apart from discussing the topics of debt crisis of Euro zone and climate change, the 2011 Cannes Summit adopted an action plan for promoting global economic growth and employment. The 2012 Los Cabos Summit witnessed continuous discussion on issues including “safeguarding growth and promoting employment”. In order to ensure enough resources for IMF to tackle the risks in international economic field, many countries declared to take part in the IMF fund increase project during the Summit. The 2013 Saint Petersburg Summit focused on the spillover effect of easy monetary policy in developed countries. The Summit called on relevant countries to adopt responsible policies to readjust their monetary policies and meanwhile strengthen coordination among all sides. At the 2014 Brisbane Summit, apart from usual issues, growth and employment continued to be the main topics for discussion. The 2015 Antalya Summit went on with the topics of the previous one. And at this G20 Summit in China, growth remained the thesis.

The so-called “major forum for international economic cooperation” refers to that, instead of an international economic cooperation forum in general meaning, G20 serves as a forum for international economic cooperation forums, that is, a “Global Steering Committee”. According to that definition and statement, the position of G20 in principle is higher than any other international forum for economic cooperation.

It has been the hope of G20 to reach the general goal of effective global economic governance. However, in all communiqués and statements issued, what’s stressed more is exactly international economic cooperation instead of global economic governance, which shows that in current world order, global governance remains to manage, control and address the common chal-lenges, problems, risks and threats by international cooperation (including formulating international rules, international standards and international institutions).

G20 Summits have been seeking international cooperation that includes not only on economy but also on other issues:

First, the biggest contribution made by G20 is the reform and modernization of IMF and WB founded in 1945, so that the world emerging economies could play an even bigger role and at the same time the position of these emerging economies in international financial agencies have been improved. It is not an easy job to reform global governance agents. From 2010 to 2015, G20 Summits have spent five years in finalizing the reform plan of international financial agents. The US Congress approved the plan in 2015, before which, other G20 member states had all finished the process of approval.

Second, when states like ROK, Mexico served as the G20 president states, the issue of global development (sustainable development) realized breakthrough. The significance of G20 in development is increasingly prominent. Sustainable development in Africa and other developing areas has been stressed, thus increased the legitimacy of G20 in the world. With decisive impact, this effort has allowed the UN Millennium Development Goal successfully upgraded to the global sustainable development goal on time.

The third one is negotiations on climate. G20 has been coordinating the policies of its member states on global climate management, so that the process of UN climate negotiation has been speeded up and the Paris Agreement has been reached eventually.

The fourth one is issues on other aspects, such as anticorruption and taxation. That shows the position of G20 in global governance, that is, a collective leadership in global governance has been consolidated.

In current world order, global governance remains to manage, control and address the common challenges, problems, risks and threats by international cooperation.

PROBlEMS FACED BY G20 AS MAJOR FORUM ON INTERNATIONAl ECONOMIC COOPERATION

The emerging economies in G20 including China, Russia, India, Brazil and Turkey all hold that G20 should not be the reform and reconstruction of G7 led by western majors, since G7 focused on global economic governance dominated by western countries, it is not fully legitimate globally. However, as a matter of fact, G7 has not disappeared from the world affairs because of the declaration and efforts by G20. Instead, G7 has been enhanced for certain level due to the existence of G20. For instance, the year 2016 witnessed both the rotating sponsorship of G7 by Japan and that of G20 by China. Dominated by Japan, G7 in spite of the feeling of most of the G20 member states reiterated its role. Obviously, Japan values its significance in G7 much more than in G20.

Within the timeframe of “crisis management” of financial crisis (2008-2010), for the purpose of motivating the initiatives of emerging economies in tackling financial crisis, the US and Europe strategically promised that G20 would be “the major forum for international economic cooperation”. On the contrary, the fact shows that this promise has just been a lip service. The reason is that Europe, the US and Japan are trying to dominate G20 with G7 instead of giving up G7.

G20 stands for a collective management to “(international) power transfer”. However, in today’s world, the“power transfer” is still far away from being finished. G7 lacks collective will as well as institutional arrangement for new management “power transfer” that takes G20 as the main forum, which is very unhelpful to the formation of the global governance system centered on G20.

Therefore, while acknowledging the significant contributions made by G20 to global governance since 2008, the following problems existed in G20 as a forum for international economic cooperation must be recognized:

Firstly, G20 is a brand-one is form yet at least half old in content. At some level, G20 is an extension or expansion of G7. Same with G7, G20 was initiated by Canada and European states. These countries belong to the “medium-level powers”in current international power systems, which means, they are already world powers in terms of territory or economic weight although their position in world power system are somewhat at the medium level. G20 covers four European countries, namely Germany, UK, France and Italy. Moreover, since EU as a full member of G20 has already stepped onto the platform of world affairs as an emerging international player to formulate and implement “common diplomatic and security policies”, the European representation in G20 is somewhat a transitional one. Therefore, it is fair to say that G20 is essentially dominated by Europe.

Yet, G20 member state UK after a national referendum has decided to leave EU and found a new relationship with EU, which will not only affect the future of EU, but also exert significant influence on Europe’s role in G20.

Though founded after IMF and WB, EU is faced with more and more problems including the aging of its framework. As a result, UK and other members have been promoting the reform of EU. That is to say, if we review the EU factor and role in G20, we would understand the deep-going problems existed in G20 as a global governance framework, and it is indeed calls forhigh attention.

Secondly, as a forum of cooperation among major countries, the international legitimacy of G20 has been a prominent question from the very beginning. Weak economies and states are not represented in G20. Although G20 has invited some non-member states to participatd and some regional organizations such as AU and ASEAN all attend the annual summit, the efforts in improving the global legitimacy of G20 still remain useless. G20 has a “democracy deficit” in global governance.

The role played by a number of major developing countries including China, India, Brazil and South Africa is helpful for the improvement of G20’s international legitimacy. However, in order to fundamentally solve the problem, G20 needs to include more countries through institutional design and implementation, so as to become an excellent model in the democratization of global governance instead of the producer of the “democracy deficit”.

Thirdly, the birth of G20 is for the purpose of responding to globalized crisis, yet it is hardly possible to accomplish this mission. One of the globalized crises is human crisis, which means the livelihood of the medium and lower level in the society is affected by globalization, even without any guarantee. In Europe and the US where globalization is deepest rooted and social elites benefit most, there appears waves of ordinary people strongly resist and oppose globalization. Apparently G20 could not reverse or address this paradox of globalization. Human beings as the main motive of globalization are able to both advance the globalization and reverse it. G20 has not yet created any miracle in stressing the solution of the imbalance. Between 2008 and 2016, although G20 has constantly stressed the focusing of tackling various problems in globalization, the panic and sufferings of the grassroots people have not been alleviated in real sense. As a result, major events in different forms trying to “reverse” globalization took place.

Global economic governance is a process of combination from upper level to lower level and the other way round. Local and national agents will incorporate with global and regional ones. That is to say, only with EU, IMF, G20, Financial Stabilizing Commission or other grand agents, the world economy could not be effectively governed.

G20 stands for a collective management to “(international) power transfer”. However, in today’s world, the “power transfer” is still far away from

being finished.

HOW SHOUlD CHINA PROMOTE TRANSFORMATION AND DEVElOPMENT OF G20?

As a member state, China has been playing a significant role in G20. China serving as the president state of G20 in 2016 has provided it with another important opportunity to play its leading role, which is of essential and far-reaching significance for the transformation of global economic governance.

Firstly, promoting G20 to become a “major forum for international economic cooperation”, i.e. the “steering committee” of global economic governance. In order to reach the great goal of global governance, China must enhance its international leadership and play its role as an international leader. For that purpose, China should provide not only physical global public products (such as the “Belt and Road”initiative and Asia Infrastructure Investment Bank for infrastructure investment), but also more importantly conceptual global public products (such as solution to reform global agents, the next-generation institutions and standards for global governance).

Secondly, improving the effectiveness of global economic governance. In the eve of the Hangzhou Summit, the third coordinators’ meeting of G20 required that G20 promote “more efficient global economic and financial governance.” China has already regarded “efficient and orderly global governance” as an objective of its foreign policy. The effectiveness of global governance is decided by many factors, particularly its representativeness.

Thirdly, promoting the modernization of global governance agents. China is a reformer of global governance agents. Reform means globalization and vise versa. International financial agents including IMF are playing a crucial role in global economic governance. However, most of these agents were founded over seven decades ago. Though with many adaptive adjustments, they still fail to fully reflect the modernization process of today’s world. Thus, China will call on the IMF and WB to implement the reform solution already approved by G20 and governments of all G20 member states (administration and registration) as quickly as possible, and will work out and approve solutions for further reforming international financial agents.

Fourthly, advancing global governance at a micro level. One of the aims of founding G20 is to control the social regression and expansion of inequality resulted in globalization, so that globalization could benefit more ordinary people. China could do a lot of things in this regard. For example, China could realize social justice domestically and make G20 focused more on global social governance.

Fifthly, building G20 into a “21stcentury major countries coordinating”mechanism. This coordination among major countries should not be only that of macro-economic policies of all countries but also cover coordination of global security policies of all countries, so that G20 and UN Security Council could play their due central roles in global security governance.