New tactics for new solutions

G20's experts advocate financial innovation and a change in thinking in order to handle the challenges of today's changed world

Reforms and innovation in economic growth models and systems for global economic coordination are needed to tackle the difficult challenges and problems facing the world's economy, experts from the G20 say.

Experts from think tanks from countries of the G20, an organization representing the bulk of the world's economy, were in Beijing recently exploring ways they could work together to support the 2015 G20 leaders' Antalya summit in Turkey on Nov 15 to 16, and the 2016 G20 Summit in China.

The event, held between July 31 and Aug 1, was hosted by the Chongyang Institute for Financial Studies of Renmin University of China, and co-organized with other leading think tanks in China.

Carlos Magarinos, chairman of the Global Alliance of small and medium-sized enterprises, says the world was alerted to a heightened risk of financial volatility and asset price fluctuations recently when the International Monetary Fund lowered its prediction of global economic growth to 3.3 percent in 2015 from its April forecast of 3.5 percent.

For developed economies, growth was forecast to be 1.7 percent, and for emerging markets, 4.3 percent, but growth for all economies is expected to slow.

The global market environment, fuel prices and consumption trends are among the factors that are pressing on the economy, he says. Even though it has been seven years since the global financial crisis peaked, the world economy hasn't fully recovered from the subsequent recession, and growth is uneven.

Magarinos says the world needs to build a new business model and economic model that would be able to adjust to the new situation. For example, in emerging markets like China, the booming middle class, whose daily consumption is about $10-$12 (9 to 11 euros) per person, would be a very important element of a new model.

In 2010, the world's combined middle class numbered about 1.8 billion people, of whom 54 percent lived in Europe, Magarinos says. But now, based on that $10 to $12 per person daily consumption criterion, the world has 3.2 billion people in its middle class, with about 54 percent of them living in Asia, he says.

That number alone means a change in global structures, and new trends leading to development of products for the new markets that are emerging. Economic transformation would create great opportunities for world growth, according to Yin Zhongyi, executive vice-president of the China Institute for Reform and Development, an influential nongovernmental think tank.

But most emerging economies still face many challenges, such as a lack of infrastructure, urbanization levels that are not mature, and a lack of an adequate service industry.

"It is predicted that in the next 10 years, every year Asia will need $730 billion of investment in infrastructure, and Southeast Asia's demand for infrastructure investment is $2 trillion (over the 10 years)," Yin says. "The G20 should discuss how to make use of this great potential to promote world economic growth."

The global economy is recovering, but recovery is uneven, proceeding at a slow pace and of uncertain sustainability. It is crucial to study and facilitate coordination of macroeconomic and related policies while guarding against negative spillover, according to the joint statement issued by the G20 think tanks. Coordination can promote sustainable growth, well-being and quality employment worldwide, the statement says.

It also advocates enhancing research cooperation to help fulfill the goal of making the collective gross domestic product of the G20 grow by at least an additional 2 percent by 2018, and to work toward implementation of the G20's 2014 Brisbane Action Plan, which outlines actions "in pursuit of strong, sustainable and balanced growth", the plan says.

Zhang Yanling, former executive vice-president of Bank of China, says that China's Road and Belt Initiative could integrate with the G20's development and contribute a lot to growth.

"The GDP of the countries along the Silk Road accounts for about half of the whole world's GDP, and its proven reserve of energy accounts for about 75 percent of that of the whole world, so this initiative is very important for European and Chinese companies. It will bring opportunities and challenges," she says. "So we need to have economic reforms to push forward the development of these projects.

"We are facing many challenges, but if we can be innovative and find a way to integrate the project with G20's actions, then all the problems concerning infrastructure and investment will be solved," she says.

Wei Benhua, former deputy administrator of the State Administration of Foreign Exchange, says the Asian Infrastructure Investment Bank and China's Silk Road Fund will supplement the World Bank and Asia Development Bank.

However, even with all these new organizations, the global infrastructure investment shortage is still huge, especially in Asia, Africa and many other developing areas, so global cooperation in this sector should be strengthened, Wei says.

"We should strengthen cooperation and set quantitative targets to better promote global infrastructure construction, which will also create more jobs and push forward economic growth," he says. Financial reforms should also be carried out globally, so that financing for big projects would also improve, Wei says.

He Weiwen, former economic and commercial counselor at the Chinese Consulate General in San Francisco and New York, says that to ensure the world's economic growth, the first thing needed is to pay more attention to the eurozone's growth, which had a great impact on global growth in 2012 and 2013. The G20 countries should help the European Union in tackling their problems. Eurozone countries need to focus on growth and creating more jobs.

He says he thinks the main reason for low global economic growth is low levels of investment.

"We need to focus more on investment in equipment and technology, which would be the basis for global economic recovery and future strong growth," he says. He suggested that the G20 consider setting up a working group to help with global investment issues.

Another priority is trade facilitation. China, for example, now has many free trade zones and many trade facilitation agreements with other countries, and this could be an important trend.

"As the global economy becomes more open, the world is ever more interdependent," the joint statement from the meeting says. "We recognize we share a common global future and destiny. We believe that continuous trade liberalization and facilitation can sustain global economic growth. We firmly oppose all forms of trade protectionism, and we champion multilateralism as the main channel for international trade liberalization."

Innovation and reform within the G20 itself is one of the important issues mentioned in the statement.

The G20, founded in 1999, is a key stage for leading developed and developing countries to discuss topics with global implications. But unlike many other international organizations, the G20 has no permanent staff of its own, and its chairmanship rotates among members. It is backed by no treaty, which has caused concerns about whether its agreements can be fully carried out.

Implementation of the G20's pro-growth target is critical, and in an interconnected world, efforts should be made to promote trade liberalization, avoid protectionism, and encourage cross-border investment, says Harold McGraw III, chairman of the International Chamber of Commerce, who attended the event.

If the G20 intends to achieve its economic growth targets, it needs to change so that common goals aren't stymied by insufficient cooperation, says Chen Yulu, president of Renmin University of China and former adviser to the Chinese central bank. Chen also says a global economic coordination system must be established to address high debt and high unemployment facing many economies.

An executive secretariat could also be established for the G20 to better coordinate work between members, and China could serve as the venue for the secretariat's office, Renmin University proposed.

chenyingqun@chinadaily.com.cn

(China Daily European Weekly 08/07/2015 page21)