Chindia@G20: Seeking Reforms through Innovation

The 11th G-20 summit in Hangzhou is taking place against the backdrop of the most recent update of the World Economic Outlook of the International Monetary Fund, which lowered this year's global growth target to 2.9 per cent from 3.1 per cent. This marks the second year in a row for less than 3 per cent global economic growth. It now expects advanced economies to grow by 1.8 per cent and emerging markets by an unchanged 4.1 per cent. By comparison, for first half of this year, China's economy grew by 6.7 per cent and is expected to reach 7 per cent for the whole year. With good monsoon and historic tax reforms under way, Goldman and Sachs believes that India's growth rate for 2016 will be 7.9 per cent, up from 7.6 per cent last year. This is what makes the G-20 summit at Hangzhou such a special event for both China and India that are increasingly seen as the first and the third most important locomotives of global economic growth.

To recall, G-20 was first convened in 2008 in the backdrop of global economic slowdown from 2007. During these eight years of global financial crisis, recovery has remained sluggish and brittle, growth environment mediocre, engulfed with rising protectionism, soaring unemployment, shrinking trade and investments, rising debt and fidgety financial and commodity markets with recent exit of Britain from European Union triggering undue anxieties. Therefore, as China takes over the presidency of the G-20, it faces formidable challenge of triggering hope and improving the world economy mired in such prolonged downturn. As the first step in that direction, Beijing has aptly picked up the theme of the G-20 summit as “Towards an Innovative, Invigorated, Interconnected and Inclusive World Economy,” which aims to stimulate global economic growth through out-of-the-box policies for promoting inclusive trade and development of robust financial markets, to instill market confidence and discourage competitive devaluations of currencies.

As regards locating G-20 in the evolving structures of the global economic governance, this continued expansion from G-7 to G-20 has unleashed transformation, thus widening the international economic regime to provide greater space for consultations amongst developed and rapidly developing economies of the world. Starting from 1976, the informal gathering of G7 industrialized countries had remained an exclusive club until 1981, when they invited the European Commission, and then recruited Russia from 1997, making it a G-8 summit. It was Prime Minister Tony Blair, host of the 31st G8 summit in Scotland, who first invited leaders of Brazil, China, India, Mexico, South Africa (the G-5) to the 2005 summit. This was also the year when G-8+5 had expanded its agenda beyond economic issues and included political and security matters in their deliberations. This explains why China has invited non-members like Egyptian President Abdel-Fatah al-Sisi, Singaporean Prime Minister Li Hsien Loong and Thai Prime Minister Prayuth Chan-ocha as well as the UN Secretary General Ban Ki-moon, International Monetary Fund Managing Director Christine Lagarde and World Trade Organization Director General Roberto Azevedo to the Hangzhou summit. Their attendance may further transform the fundamentals of global economic governance structures.

For a long time, China has been calling for democratization of international financial institutions to create more resilient mechanisms. With the focus placed on reforms, adjustments and innovation, the run up to the 11th G-20 summit has witnessed this China imprint through the inclusion of several new sectors with additional ideas and ministerial meetings expanding its agenda. China's Road and Belt Initiative will also bring into focus China's promotion of “green finance” system that involves technologies, infrastructure and companies, which will be critical in the transition to a low-carbon, climate-resilient and resources efficient economies. This has already been put in place in China's 13th Five-Year Plan (2016-20) and, with the recognition of green financing putting high priority on environmental sustainability, the G-20 leaders are likely to endorse it towards lowering of finance costs for the growth of green economies. Similarly, at the bilateral level, China and India have been discussing free exchange of Chinese Renminbi and the Indian Rupee at the local markets, as businessmen investing in each other's countries are faced with numerous problems in payment through a third currency like US dollar or the Euro. This innovation is expected to guard against international currency speculations, thereby controlling inflation and discontent that inflation triggers.

China and India today have both the opportunity as also responsibility to work in tandem to complement each other's initiatives. They represent world's two largest and fastest-growing economies, and it puts special focus and onus on them to steer this evolution of global economic governance by initiating innovative structural reforms. China-India relations have witnessed euphoric momentum ever since Prime Minister Narendra Modi came to power in May 2014, and especially following President Xi Jinping's September 2014 visit to India, which led to China and India signing contracts worth $50 billion of Chinese investments in India in the next five years.

Prime Minister Modi and President Xi Jinping have maintained regular interactions. Indeed, when it comes to his meetings with major world leaders, other than President Barack Obama, Prime Minster Modi has met President Xi maximum times and the two are scheduled to meet again on the sidelines of G-20 summit in Hangzhou and then next month at BRICS summit in Goa, India. Besides, Foreign Minister Wang Yi's visit to Goa and New Delhi in August seems to have already initiated course correction in improving atmospherics and India has promised its full support in making G-20 summit a success for China, hoping reciprocity in the forthcoming BRICS summit in India, where China is sending a 300-strong delegation. With two-thirds of global population and over 80 per cent of global economic output, the G-20 steering global economy presents an ideal platform for Chindia to not just catapult their own role and representation but to reboot global growth and transform global governance structures.

Finally, apart from contentious political issues distracting deliberations, industrialized economies will be tempted to focus either on political issues like Syria and refugee flows or on limited fiscal and monetary adjustments to address short-term stability and predictability. It is here that China and India must take developing countries along to front load long-term innovative reforms and structural adjustments, so as to create fertile environment for faster economic growth for all. Also, China must ensure that G-20 during its presidency emerges as an organic and continuous work-in-progress to instill mutual confidence about their partnership and the efficacy of their decisions. For the first time, innovation has become the key G-20 agenda, characterized by hope of adopting new business models and financial management to encourage new consumption patterns and introducing new productions and technologies.

Author is professor of Diplomacy and Disarmament, School of International Studies, Jawaharlal Nehru University, New Delhi. And this article is exclusive to China-India Dialogue. Feel free to share this article. To reprint this article, please contact us for permission.