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How China's 'New Normal' Growth Can Be a Catalyst for the G-20

The Huffington Post The Huffington Post 13/11/2015 Ernesto Zedillo

This article is excerpted from a recent lecture at Tianjin University, China. This year's G-20 summit is being held in Turkey.
TIANJIN, China -- If confirmed in the near future, a "new normal" of the global economy -- with its depressed commodity markets, slow (if any) expansion in world trade, and gloomy growth prospects for most rich and emerging countries -- would not be a nice one.
Rather than a scenario like the one that appeared probable before the 2008-2009 financial crisis -- one leading to economic convergence -- the latter seems less certain and at best would take place at a slower pace. Convergence may still proceed but not because of fast growth in emerging countries but because developed countries will grow little in the foreseeable future.
It could become an era of globalization retreat that would bring about a slide in human development and cause enhanced security and geopolitical risks.
Such a retreat would be unfortunate worldwide. No country will win and all will find it much harder to advance their own national interests.

Convergence may still proceed but not because of fast growth in emerging countries but because developed countries will grow little in the foreseeable future.

The fact that we find ourselves contemplating such a possible scenario is explained, at least partially, by a conspicuous absence of international cooperation, especially to the extent demanded by the intensification of globalization that has occurred over the last few decades.
It is revealing that already more than 20 years ago careful observers would argue persuasively that the international rules and institutions required to deal with the degree of globalization achieved by then were clearly underdeveloped. As we know, it was also around that time, that globalization gained enormous momentum and yet the structures of global governance have remained for the most part unchanged ever since.
This asymmetry between the intensification of globalization and nil or slow progress in governance has left the world exposed to serious disruptions that can cause severe economic and social costs.
Think again about the horrendous crisis of 2008-2009, whose sequel is still affecting us.
Although some of the root causes of the crisis could be traced to strictly domestic policy decisions in the countries where it erupted, ultimately it happened because the key players in the international economy failed to address, in a coordinated way, issues stemming from increased trade and financial globalization such as the so-called global macroeconomic imbalances, which had been identified early on as a serious threat to international financial stability.
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Full recognition of this failure was provided by the G-20 leaders themselves. In fact, at their first summit meeting in November of 2008, they precisely declared that inconsistent and insufficiently coordinated policies had led to the crisis and committed specifically to bring about that purported cooperation.
Unfortunately, seven years after that pledge was made, it is fair to say that it has not been honored in any lasting way. True, there was some initial coordination of fiscal policies in 2009 and central banks have done their best to continue providing some coherence to their respective policies, but there has not been a serious attempt to evolve towards an institutional framework that would deliver the necessary effective synchronization of macroeconomic policies.
The peer review process agreed by the G-20 to deal with the prevention and correction of macroeconomic imbalances proved to be totally ineffectual and the subsequent offer to enhance the IMF's surveillance mandate and action has been left unfulfilled as well. Thus, it is not surprising that the crisis and its sequel have proven to be such a protracted and hugely costly process.
Another flagrant case of an unmet commitment of international coordination is provided by the failure to conclude the WTO Doha Round. Launched in November of 2001, coincidentally at the time of China's accession to the WTO, the Round has become a story of repeated collapses and restarts of the negotiations with still no end in sight.
It is not only that the important issues included in the Doha agenda have not been solved but also that the failure to conclude the Round is preventing the institution from embarking on the new trade issues, including those that may not be effectively tackled without giving up the traditional WTO practice of approval by consensus. Both failures -- concluding Doha and addressing new issues -- unquestionably carry a significant cost in terms of trade in goods and services as well as foregone investments.
Climate Change Mitigation Falls Short
Addressing climate change effectively has also proven patently elusive. The Kyoto Protocol, for all practical purposes, failed. As we speak, the international community is looking to agree on Kyoto's successor instrument, the target being to deliver it at the upcoming December 2015 Paris Conference of the Parties of the U.N. Framework Convention on Climate Change.
Unfortunately, even if the COP 21 adopted a new international agreement to deal with climate change from 2020 onwards, it is not to be expected that the content of that agreement --assuming that it would be properly executed -- will be sufficient to meet the mitigation objectives already declared by the Parties. This presumption can be safely established by observing that the approach followed by the negotiating parties has not departed substantially from the failed Kyoto Protocol. A glance at the draft documents for the Paris agreement -- which I have done -- should reinforce a rather pessimistic outlook for the outcome of the COP 21.

A glance at the draft documents for the Paris agreement -- which I have done -- should reinforce a rather pessimistic outlook for the outcome of the COP 21.

Macroeconomic policy coordination, trade and climate change are just three of many examples where despite the evidence that cooperation is in the national interest of all states, achieving it consistently and sufficiently continues to be elusive. This elusiveness stems from the very nature of what international cooperation is meant to provide: global public goods. These goods -- as explained in a report of an international commission that I co-chaired several years ago -- are those that pursue goals that are broadly conceived as important to the international community, that for the most part cannot or will not be adequately addressed by individual countries acting alone and that are defined through a broad international consensus or a legitimate process of decision-making.
Globalization Loses Momentum
The "tide" of fast deepening globalization that seemed to "be lifting all boats" enticed governments to ignore their own need to provide their fair share for improving global governance. As the financial catastrophe of the fall of 2008 unraveled, there was some reaction that provided a modicum of international coordination, which proved just enough to avoid what could have been the great depression of the early 21st century. But, as noted, that momentum was soon lost.
The question is whether under today's rather uncertain prospects of the global economy there is any chance for any major initiatives of international cooperation to prosper. Some thinkers are highly skeptical by reasoning that a stalling international economy make too hard, if not impossible, for leaders of the major economies to have domestic support for both global economic engagement and more collaborative relations with other states.
China As A Catalyst
It is hard to argue against this generally valid observation. But I believe that a new and substantial catalyzing element of international cooperation may be evolving as a consequence of the new normal of the global economy. That emerging, and potentially highly effective, catalyzer is none other than China.
It is not that the leadership of China should now have reasons to change what traditionally has been a policy of active engagement in areas that unquestionably serve this nation's interests while abstaining from making proposals for a grand redesign of the international system. There should be appreciation for the prudent, non-disruptive, way in which China has integrated itself into that system.
China's pragmatic participation in the international order has served its own interest but also has helped to preserve the good aspects of that order. This has certainly been the case with China's dealings with the Bretton Woods institutions and the World Trade Organization. Examples abound of China supporting consensus initiatives in those and many other international organizations, while exercising its own prerogatives within those institutions to advance her national interests.
China has not shrunk from her responsibility at the critical junctures, for example when in the aftermath of the financial crisis, this country's leaders acted decisively with a massive fiscal and monetary stimulus to China's own economy that also served to shore up the global economy. Enlightened self interest is what, in my view, should encourage China to leverage its global economic weight in the pursuit of multilateral pathways to address more effectively the three critical issues where international cooperation has so far proven clearly insufficient.
China's pragmatic participation in the international order has served its own interest but also has helped to preserve the good aspects of that order.

China needs others and others need China if the outlook of much slower growth for all in the years to come is to be improved substantially. Uncoordinated efforts by each of the key economies will give rise to the emergence of macroeconomic imbalances, mutually inconsistent exchange rate policies, and ultimately beggar thy neighbor kind of situations that will give rise to contention and conflict that would frustrate the participants' aspirations for stronger growth.
The best way to put in place a win-for-all coordination of macroeconomic policies consists of enabling a multilateral institution to carry out that endeavor. That institution, in principle, already exists. It is the IMF. But its members must reinforce its surveillance authority and empower it with a reinforced mandate and the tools necessary to entice countries to deliver the policies consistent with the commonly agreed objectives of economic growth and financial stability. This goal is not at all outlandish. It is what at some point the G-20 committed to promote and has failed so far to deliver.
China and all the other beneficiaries of globalization need a stronger multilateral trading system to keep lowering, in a non-discriminatory way, trade barriers-tariff and non-tariff; for merchandise and services -- and to put a halt and to discipline the risky proliferation of regional trade agreements.
The WTO is the backbone of the multilateral trading system and far from weakening it, as they seem to have tried to do over many years, its members should fortify it. The first step must be to cease the Doha Round either by concluding it with at least a modest liberalization package or by committing to declare it formally extinct by a certain date for lack of agreement among the members. Concluding Doha was one of the solemn commitments of the G-20 that unfortunately has also been left unaccomplished. Closing at last Doha would help to fix the worrisome trend of lethargic trade.
China needs others and others need China if the outlook of much slower growth for all in the years to come is to be improved substantially.

China's stake in effectively mitigating climate change is enormous. For the well being of its own people China needs the world to agree on a regime that limits GHG emissions within the range that scientists have determined as necessary to prevent a climate catastrophe. China has taken huge steps to provide its share in the fight against climate change.
President Xi Jinping's announcements at the time of his meetings with the United States president in November, 2014 and September, 2015 highlight the commitment of the Chinese government to cooperate sufficiently and effectively in the solution of the tremendous problem that is climate change.
Other large emitters like the U.S. and the EU have also put forward significant commitments to reduce CO2 emissions. But all must plan for more ambitious targets. Within the umbrella provided by the outcome of the COP 21, which will have at best a declarative value, the biggest emitters should coordinate among themselves in order to provide an effective international regime that truly sets the world upon the necessary emissions abatement trajectory.
The G-20 Presidency in 2016 constitutes an excellent opportunity for China to advance international cooperation in these three critical areas. They happen to be important for both China and the world, and the international community has repeatedly declared its commitment to address them but has failed to operationalize, and consequently honor, such a commitment.
China should exercise a constructive assertiveness to encourage its key G-20 partners to deliver on the promises made in years past. The alignment of China's own interest with the global interest on the three critical topics of macroeconomic policy coordination, trade and climate change, makes the 2016 G-20 Presidency a unique window of opportunity to strengthen the multilateral system and global governance. My hope is that the leaders of China use with wisdom this unique opportunity for the sake of their own people and of humanity at large.

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