Hangzhou confirms G20's global role

Meeting helps cement China's position as a world leader, emphasizes developing nations' growing influence

Economic factors brought the G20 to global significance. In 2009, the United States was too weak to address the financial crisis and needed the economic resources that the developing world, particularly China, could bring to rescue the global financial system. This year, it was the weak global economy that became the most important topic at the summit in Hangzhou.

In the seven years after the G20 meeting in London in 2009, much has changed. Today, the 10 emerging countries included in the G20 account for more global GDP than the developed countries, adjusting for local cost differentials using purchasing power parity.

Has the G20 really replaced the G7 as the main global forum for major issues, from climate change through to tax, corruption and refugees? And has China, this year's host, really cemented its position as a global superpower after a long period of standing backstage and avoiding the limelight?

The meeting this month addressed the weak global recovery after the 2008 crisis by issuing the Hangzhou Consensus, which emphasizes structural and supply-side reform as the foundation of long-term, noninflationary economic growth, while at the same time subtly drawing attention to the limitations of monetary policy driven by central banks as the main pillar of global economic growth.

Quantitative easing, introduced as an emergency measure in the US in 2009 and later by Europe and Japan, has produced negative interest rates in many major financial markets. It's not yet clear whether the effect of negative interest rates is to persuade consumers to spend more, as its supporters hope, or to spend less, as consumers seek to avoid the uncertainty produced by a radically new financial regime with unknown wealth and macroeconomic effects. If it's the latter, the negative interest rate experiment will slow economic growth rather than stimulate it, and at the same time weaken banking systems that need savings deposits for funding, yet dare not charge savers for lending their money.

The statement in the Hangzhou Consensus that central banks cannot support economic growth on their own must have become obvious to everyone (except perhaps for a small group of economic theorists who see no limit to monetary easing). Thus, the emphasis of the G20 on structural economic reform, on a global scale, is welcome, although one wonders how effective such exhortations will be to politicians whose main interest is holding onto power, while always facing stiff resistance to important fundamental change from powerful vested interests.

Certainly China, the G20 host, has shown the way in making structural economic reform the main pillar of its economic policy, even if the progress so far has not satisfied some commentators.

Even though the consensus will not alone bring about economic recovery, it's a good start. It underlines the importance of the G20 as an organization that can set a global tone in key issues, where formerly the US, supported tacitly by a few European countries, gave the lead in global affairs.

The extent of the issues addressed by the final G20 communique underlines this growing importance. They include green finance, corruption, infrastructure, refugees, trade, climate change, terrorism and global governance via International Monetary Fund and World Bank voting changes, which would recognize the increasing role played in the world economy by emerging countries. But without an effective champion, emerging countries will not get recognition from the established powers (led by the US) and institutions (like the IMF) that they deserve.

The summit in Hangzhou underlined China's vital role as an emerging country that can stand toe to toe with the US, and can therefore provide the leadership and credibility that the emerging world needs to develop its voice and agenda.

China can go further, by developing a new economic and social agenda that pulls otherwise isolated and uncommitted parts of the world into the global network. The G20 Summit developed this theme by underlining the significance of the Belt and Road Initiative, which links Asia with Europe via many poor countries in Central and South Asia. China's role as a link between the developed and the undeveloped world, one that only it can play, will prove an essential part of economic and social progress over the next 50 years.

In a world that has grown accustomed to the underpinning of growth by central banks and monetary policy, the Belt and Road Initiative demonstrates the importance of public and private spending on modern transport, communication and energy systems, which play a vital role in boosting productivity and economic growth.

The G20 Summit was the first global meeting since Britain voted on June 23 to leave the European Union. The country is the world's fifth-largest economy and home to many companies from the world's largest economies looking to develop and expand their businesses in Europe. So Britain's decision to leave the EU is not just an important matter for the British, but also for many other countries.

In Hangzhou, world leaders were provided an opportunity to get a sense of how Brexit would be carried out, but they were to be disappointed. British Prime Minister Theresa May gave no clear indications of how she thought the exit negotiations would go, instead simply stating that she and her colleagues needed time to consider their options.

May also faced a difficult few minutes in a private meeting with President Xi Jinping to explain why the British government was yet to decide on the proposed Hinkley Point nuclear power station. The project has been the spearhead for a more intense Sino-British relationship, whereby China uses Britain as an platform to develop its European interests.

The prime minister will have left the G20 summit with a strong sense of the urgency with which many world leaders want an end to the uncertainty surrounding Brexit, and also of the depth of Chinese concern over the possible rewriting of what they thought was a firm agreement to invest in and manage British nuclear power.

The agreement between the US and China to address global warming by limiting carbon emissions set up the G20 summit as a platform for developing global cooperation on a wide range of issues. In turn, this achievement has promoted China's global image as an economic superpower that can bring key players together to address key issues and search for practical solutions.

At the same time, the US-China deal demonstrated the strength of the relationship between the leaders of the two countries. Will this relationship be as strong after the US presidential election in November? If not, then a host of vital issues, from the South China Sea and relations with Iran to the fighting in Syria and global terrorism, will be affected.

That's how important cooperation between the two superpowers has become. But the summit in Hangzhou underlined that it's the G20, and not the G2, that China wants to be the key global organization.

The author is a visiting professor at Guanghua School of Management, Peking University. The views do not necessarily reflect those of China Daily.