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Wang Xiangwei
SCMP Columnist
China Briefing
by Wang Xiangwei
China Briefing
by Wang Xiangwei

Countdown to G20: 100 days for China to take the international lead

The run-up to the September summit in Hangzhou could be a chance for China to stake out the high moral economic ground and show its vision for growth

Compared to past years, the 2016 Group of Seven summit, which ended last week, received considerably less coverage in Chinese state media.

Its final communiqué even earned a strong rebuke from the foreign ministry because it expressed concerns over the South China Sea.

The Chinese government reserved its fanfare instead for the 100-day countdown to the Group of 20 summit in Hangzhou and promised a map to lead the world economy out of its doldrums.

Indeed, both Chinese officials and state media highlighted the waning influence of the G7 summit because it excluded China, India and other emerging economies. The G20 members account for 85 per cent of the world’s GDP, compared to about 47 per cent for the G7 nations.

There is also an element of rivalry involved as Japan was the G7 host and worked with the US to press other members to isolate China, among other issues.

As expected, the G7 meeting failed to produce anything substantial except warnings of rising risks to the global economy and against competitive currency devaluations.

Now the pressure is on China to show its leadership and international vision

Now the pressure is on China to show its leadership and international vision, with Chinese officials promising to shift the focus of the G20 summit to finding medium and long-term economic drivers to revive growth and trade flows.

But Beijing has some heavy lifting to do amid rising international concerns over the state of the Chinese economy – growth looks set to slow further, hobbled by excess industrial capacity, soaring local government and corporate debt, falling foreign exchange reserves and a slump in foreign trade.

The international business community’s confidence in China’s policymakers was also eroded by an ill-conceived stock market rescue last year and the lingering confusion over currency policy.

Guessing game: who is mystery ‘authoritative figure’ claiming major shift in China’s economic policy?

It is then easier to understand the significance of the People’s Daily interview with “an authoritative source”, published earlier this month. In it, the source strongly rebuked some of the government’s policies and warned against massive monetary easing, calling for immediate measures to cut excess capacity and shut “zombie enterprises”.

The source also warned that China’s growth would be ­L-shaped in the next few years and the debt build-up “is creating systemic financial risks”, directly countering other officials who tried to play up the strong first-quarter figures.

The interview is widely believed to reflect the views of President Xi Jinping and signal that he wants to take a more assertive role in the management of the economic portfolio handled by Premier Li Keqiang and his team.

Since the article appeared, Xi has used several more meetings to highlight the importance of reducing industrial capacity and deleveraging – although he has also admitted that many local governments have taken a wait-and-see attitude.

The interview was mainly aimed at the domestic audience, raising a red flag to say time is running out to speed up structural reforms. But Xi was sending a message to the international community as well.

Many of the world’s major industrialised countries have been using unprecedented monetary policies to stimulate their economies but this has stalled structural reforms and progress has been uneven.

China’s zombie war: can Xi Jinping win the battle to eradicate industrial overcapacity?

While the US economy is recovering, the economies in the European Union are still troubled.

The economic policies of Japanese Prime Minister Shinzo Abe have produced mixed results at the best.

China needs to do much more to assert its leadership as it tries to push back growing pressure from the West

Meanwhile, the US and the EU have clamped down further on cheaper Chinese steel exports amid growing pressure for the West to block Beijing’s bid for “market economy status”, which should be achieved in December on the 15th anniversary of its 2001 accession to the World Trade Organisation.

Against that background, China’s determination to pursue structural reforms to cut excess industrial capacity in its key metals sectors as well as reduce corporate and local government debt could give it the high moral ground in the G20 meeting.

Of course, China needs to do much more to assert its leadership as it tries to push back growing pressure from the West.

The upcoming US-China Strategic and Economic Dialogue offers a chance to help build momentum for the G20 summit.

China should accelerate efforts to conclude negotiations with the United States on the bilateral investment treaty to liberalise investment rules. But US officials have complained privately that China has been dragging its feet in coming up with a new and workable “negative list”.

While it remains unclear if any substantial progress will be made on the treaty, Washington and Beijing are expected to reach consensus on the yuan as Beijing has largely agreed to the US request to defy mounting pressure and not devalue the currency.

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