Economic uncertainties cloud China’s G20 moment

This week, China is hosting the G20 Summit Hangzhou and has the world’s attention as world leaders gather to discuss the shared challenges of spurring economic growth and avoiding any tendencies for economies to turn to protectionist moves that stifle global trade.

Indeed, the G20 has for several years now replaced other global fora – including the G7 – as the premier venue to discuss global economic issues and chart common positions.

The summit also provides China with another high-profile venue – following up on its hosting of the Asia Pacific Economic Cooperation in 2014 – to enhance its international status as a global leader in shaping economic discussions.

Challenges on the agenda

But, as China hosts the leader’s summit this week, Beijing’s G20 moment is overshadowed by a number of concerns regarding the stability of the global economic recovery and the strength of international cooperation to mitigate future crises.

One of China’s key priorities during the summit is to discuss the reform of global governance bodies that appear to be ill-equipped to deal with the barrage of shocks to the world’s economy.

The world’s premier economic fora – such as the International Monetary Fund, World Bank, World Trade Organization and a range of regional development banks – have been slow to take on governance reforms and have been unable, or unwilling, to adapt to the dramatic changes in global wealth distribution over the past two decades.

The G20 has shown its strength mainly during crises and has been effective when in reactive mode.

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During China’s host year, they have attempted to hammer home this point and their establishment of the Asian Infrastructure Investment Bank (AIIB) was largely born out their frustration with the poor allocation of shares in current institutions, such as the Asian Development Bank (ADB).

Indeed, the United States-Japan-led ADB has more than 30 percent of its capital flows coming from Tokyo and Washington, while Beijing contributes a mere six percent.

Despite lingering concerns in the US and Japan, among other countries, about the role of the AIIB – there is shared goal from the G20 on the need for infrastructure development as an element for sustainable growth.

Risks ahead

Aside from stagnancy on global governance reform and the remaining divide on the AIIB, the effectiveness of the G20 meetings has been blunted as a result of the reluctance of members states to sign on to a joint action, and rely more on the forum as a venue for shared practices and to gain acceptance or understanding of their national economic and financial policies.

Essentially, the G20 has shown its strength mainly during crises and has been effective when in reactive mode.

Where it has lacked strength or purpose thus far is its ability to achieve real consensus on proactive and effective measures to mitigate future financial risks and potential crises.

Another ongoing risk to the integrity of the G20 grouping is the intense growth of regionalism on issues of trade and investment.

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This is largely an outgrowth over the frustration of the stagnancy of liberalising global trade and failure of repeated trade negotiations at the WTO mired in dispute since the Doha Round.

But the regionalism is especially acute and important for China as host, due to the fact that some of the most ambitious initiatives are coming out of Asia.

The region is already covered in layers of bilateral and multilateral free-trade agreements, but now there is the push for large bloc groups such as the US-led Trans-Pacific Partnership and the Chinese-backed Regional Comprehensive Economic Partnership.

Additionally, China has focused its investment approach regionally through the AIIB and its One Belt, One Road initiative.

China’s domestic issues

But aside these challenges, one other reason why this summit is especially critical for China is due to its own vulnerabilities as it transitions to more balanced growth.

Beijing is struggling to search for sustainable solutions to issues of overcapacity and moving from an export-first economy to a steadier equilibrium that spurs domestic consumption, especially among China’s rapidly growing middle class.

Unfortunately, it appears that Beijing does not want to address what it terms as “national policy” issues during the G20.

In the lead-up to this week’s summit, the state-run China Daily remarked in an opinion piece that there was “no need for the G20 to discuss overcapacity” and insisted that “it should be a domestic, rather than global, issue and should be resolved within the concerned country’s pricing and trade policy framework”.

For China to end this week’s summit with a positive G20 moment, it will need to reassure other states of its commitment to take strong leadership going forward that makes the institution coherent and effective.

Beijing also needs to demonstrate the importance of boosting global growth and focusing attention back on liberalising trade, rather than focusing too much talk on regionalism.

J Berkshire Miller is the director of the Council on International Policy and is a fellow on East Asia for the EastWest Institute.

The views expressed in this article are the author’s own and do not necessarily reflect Al Jazeera’s editorial policy.