Open, innovative economy inevitable for today's world

Robot monk Xian'er is on display during the 2015 World Robot Conference in Beijing, China, November 23,?2015. [Photo/IC]

Reporter's Note: As the Davos Forum 2017 approaches, the China Daily website interviewed Professor John J. Kirton, Director of the G7 Research Group at the Munk School of Global Affairs at the University of Toronto, to get his views on the major issues at the Davos Forum this year. He emphasized that climate problems in China would be key agenda items that China would lead discussion on.

1. The official Davos website points out that global events this year have reminded decision-makers that the more complex a system, the greater a community's concern about its future. The weakening of multiple systems has eroded confidence at the national, regional and global levels. And, in the absence of innovative and credible steps towards their renewal, the likelihood increases of a downward spiral of the global economy fuelled by protectionism, populism and nativism. What's your outlook for the world economy in 2017? How can we innovatively and solidly foster the renewal of the global system? What kind of responsibility do you expect China to take within that process?

Political, professional and public concern is indeed proliferating as the forces of anti-globalization, protectionism, populism and nativism gather force, even in Europe and the United States. At present, global growth in 2017 should meet its post-1945 annual average of about 3 percent. But the real risks from policy in the US and Europe, and geopolitical risks from Russia could drive it down sharply, and, even in several key countries, into the negative range.

To protect and renew the global system, the immediate need is for US president-elect Donald Trump to suspend his protectionist trade and investment threats, and for the Group of 20 (G20), perhaps even through a special summit in February, to collectively declare their belief in an open, innovative global economy and take concrete steps in this direction. For example, they could elaborate the high-level investment principles they agreed to at their Hangzhou Summit in September in 2016. They could also agree to have G20-wide free trade in environmental goods, as the Asia Pacific Economic Co-operation (APEC) leaders, including those from China and the US, did among APEC members a few years ago.

Here, China, as the skilled host of the G20's Hangzhou Summit in 2016 and still a member of the governing troika in 2017, will need to lead. As I show in my recent book, China's G20 Leadership (London: Routledge, 2016) China's leadership in the G20 has grown, in a careful, cooperative way. But now, with an inward looking US and Europe, China will need to play the role in a bigger, bolder way than ever before.

2. The Financial Times commented in an article that people have big expectations of President Xi's attendance in Davos this year, thinking that China could cast itself as a guardian of global governance and the torchbearer for the open trading system, given that President Xi champions the Paris climate change accord, defends the international community's nuclear deal with Iran and supports trade liberalization in Asia. What topics do you expect President Xi to take up in the coming Davos Forum? What kind of expectations do you have of China's role in global affairs?

I, as well as many others, have great expectations of President Xi's and China's leadership in global governance. These are based on his proven performance as host of the G20's Hangzhou Summit, his role at the subsequent APEC leaders' meeting in Peru and the urgent need at present to shape the global order in the way the world badly needs. This begins with the challenges—climate change. Climate change is an even more urgent threat for China, given the harmful smog that has suffocated so many Chinese cities for the past few months and the status of 2016 as the world's warmest year on record.

As President Xi said at the G20's Hangzhou Summit, "green mountains and clear waters are as good as gold and silver." I expect him to repeat those words at Davos and put the natural environment first, for the sake of his own citizens and all the world's. China should lead in "walking the talk" by shutting down its own coal mines more quickly, contribute to the existing global climate funds more generously, and make climate change control the signature theme of the BRICS summit it will host in 2017. To boost global trade, investment and infrastructure, it should make its New Silk Road and supporting fund a more truly multilateral project, along the lines that it has with its Asian Infrastructure Investment Bank. It should also connect the Road directly with the western hemisphere to make it a genuinely global one.

3. Martin Wolf mentioned in an article that behind the tendency towards economic growth lie two powerful forces: innovation at the frontier of the world economy and catch-up by laggard economies. The two are linked: the more the frontier economies innovate, the greater the room for catch-up. An important longer-run possibility is that the underlying economic engine is running out of steam. Catch-up still has great potential. But core economic dynamism has declined. One indicator is falling growth in productivity. Another is ultra-low real interest rates. People are worrying about whether the advance of the frontier of innovation has in fact slowed. What do you think about the two forces? Is it possible that China could maintain catch-up growth?

The two forces are really one, so China can and should pursue catch-up growth and innovative frontier growth at the same time. Both growth and innovation depend critically on globally open exchange in finance, trade, investment, people and ideas, especially in today's intensely interconnected world. Economic growth and innovation come importantly from immigrants, as the United States internet economy shows. China is now following Japan from a few decades ago in transitioning from poverty-reducing catch-up growth to innovative growth, in areas such as outer space, robotics, mass rapid transit, health care in an aging society and renewable energy above all. As China showed in making innovation the central theme of its Hangzhou Summit, it is now able and willing to join the United States and Europe as the leader in innovation to unleash a new era of sustainable global prosperity that can be shared with all.

4. Various European economists have expressed concern about the coming presidency of Donald Trump, specifically the expectation of inflation from his planned economic policies. They worry that the policies may worsen the debt structure of European countries, or even cause a global trade war. What's your opinion on the influences that Trump's coming term may bring for European countries?

There are real risks for all, including the European countries, as Donald Trump pursues even part of the policies he proclaimed as a presidential candidate, as he chooses key members of his administration and tweets threats against leading companies from the US and abroad. The biggest threat by far is his trade and investment protectionism, targeting China as the world's greatest trading power, US neighbor Mexico and now US ally and Group of Seven partner Japan. This could easily create a protectionist spiral, of the sort that that the G20 prevented during the Great Recession of 2008-2010, but that could now do damage on the scale of the Great Depression of the 1930s. Trump's promises to expand fiscal stimulus, infrastructure investment, international pipeline construction, and deregulation would first produce growth in short term but for longer term, the possibility of serious inflation does exist.

5. The Davos forum's official website points out that the theme "Responsive and Responsible Leadership" entails a deeper commitment to inclusive development and equitable growth, both nationally and globally. It also involves working rapidly to close generational divides by exercising shared stewardship of those systems that are critical to our prosperity. What's your expectation of China's future role and contribution on these aspects?

China has proven itself as a global leader in development, by lifting so many of its own citizens out of poverty and providing them with basic goods such as electricity access and education. But it now faces the challenges of all affluent countries in making its growth more equitable. It is also still struggling to overcome the generational divide, to leave an intact natural environment for future generations and allow young people to lead now.

6. Of the 14 System Initiatives of the Davos Forum, such as shaping the future of consumption, digital economy and society, economic growth and social inclusion, financial and monetary systems, international trade and investment, long-term investing, infrastructure and development, which do you consider the most important?

The greatest advance will come in the digital economy and society, as it is driven by innovative entrepreneurs, firms and consumers, and few governments will have the will or ability to stop a technological surge that promises to benefit most, even if in an unequal way. Pressing human needs for a clean environment and healthcare for aging societies will drive the demand for and supply of innovation. Social inclusion will lag, as few have found solutions to economic and social inequality and exclusion in the "gig" economy where millennials are still scarred by the Great Recession and few people wish to engage with the elderly. The least advance will come in shaping consumption in the ecologically necessary way, as few have learned the lesson of the 1970s in the advanced economies that all must refuse and reduce before they recycle and reuse.