Can - and will - China seize its chance to set global agenda at the G20 finance ministers' meeting in Shanghai?
The gathering of G20 finance ministers and central bankers this week will offer a test of Beijing’s ability to set the global agenda.
While its image as a smart manager of the economy and markets has been tainted by its handling of the domestic stock rout and the yuan exchange rate, Beijing’s ambition to make its mark in the group of the world’s top 20 economies is undiminished.
It is unlikely that any development on the scale of the 1985 Plaza Accord – an agreement between France, West Germany, Japan, the United States and Britain, to depreciate the US dollar in relation to the Japanese yen and German Deutsche Mark by intervening in currency markets – will occur at the Shangri-la Hotel in Shanghai.
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But China has other ways to make the meeting relevant to the world economy, perhaps by seeking new ways to buoy global growth, from infrastructure investment to green finance, researchers say.
“The G20 is a forum without binding authority, but it actually suits the Chinese way of doing things by building up consensus,” said Zhu Jiejin, an associate professor in international relations at Fudan University in Shanghai.
“As the French hosting officials did in Paris to make a climate deal possible, Chinese hosts can go the extra mile in seeking agreement on issues like growth and financial stability,” Zhu said.
France’s hosting work is widely regarded as key to the success in reaching a climate change deal at the end of last year.
Preferences by the host country, in this case China, for what “should be talked about” could not be neglected, said Zhu, even though short-term turmoil in the financial markets threatened to steal the limelight.
President Xi Jinping has said China’s presidency of the G20 in 2016 is themed around moving towards an “innovative, invigorated, interconnected and inclusive world economy” – a topic rarely discussed over foreign exchange interventions or fiscal and monetary easing.
Rather than argue over currency tensions, with little hope of Beijing and Washington agreeing, China might look at “solving a few targeted problems in the global economy where agreement is realistic, and building cooperation on longer-term issues of shared interest,” said Tristram Sainsbury, a research fellow at the G20 Studies Centre with the Lowy Institute for International Policy in Sydney.
It would be “damaging for the forum if G20 countries were to enter into concrete agreements that are not helpful for their domestic context and cannot be necessarily implemented,” Sainsbury added.
When it hosted the Asia-Pacific Economic Cooperation summit in 2014, China tabled a Free Trade Area of the Asia-Pacific proposal to give the gathering something concrete to discuss.
In 2005 when China last hosted the G20 finance ministers, it inked a separate agreement, in addition to the regular communique, on reforming the Bretton Woods system. China managed to get what it wanted, including winning the yuan a symbolic status as an international reserve currency and gaining bigger voting rights, along with other countries like India, at the International Monetary Fund.
Meanwhile, China as host will be able to shelve issues it doesn’t like talking about, such as the yuan exchange rate.
At the G20 meeting in 2005, much of the world and particularly Washington was pressing Beijing to allow a faster yuan appreciation, but the pressure “made no difference” to China’s currency policy, said Mark Williams, the chief Asia economist with Capital Economics in London.
“China may not always get policy right, but it will opt for the policy it believes is in its best interests, not to satisfy the demands of foreigners,” Williams said.
In 2010, China blocked a proposal by then US Treasury Secretary Timothy Geithner, of capping trade imbalances to 4 per cent of GDP, from being included on the G20 agenda in South Korea. China had feared such a strict line would invite unnecessary restrictions on its exports.
Even so, Lou and Zhou Xiaochuan, China’s central bank governor, will need to explain China’s economic and financial health to their counterparts.
Beijing needs to restore confidence in its ability to govern the economy, said Scott Kennedy, a director at the Washington-based Centre for Strategic and International Studies. “The angst and anxiety about China is so pervasive that this has to be addressed head on.”
Even if the Shanghai meeting fails to bring a breakthrough in global policy coordination, it shouldn’t be too heavy a blow to China’s hunger for global influence.
China’s international clout and leadership depended on its pursuit of reform and growth, and its G20 performance was “a result, not the source”, of China’s power, said Ren Kangyu, a professor with the G20 research centre at Beijing Foreign Studies University.
“China knows that real power is never about a noisy conference, spectacular accommodations, fancy subjects or a lot of celebrity speakers,” Ren said.