China’s G20 Presidential Term: ‘Last Exit before the Bridge’

Source: Press Trust of India

Source: Press Trust of India

“Obviously, the problem is with capitalism,” stated Ali Koç, a third-generation member of the Board of Directors and Executive Committee of Koç Holding- the largest privately-owned industrial conglomerate in Turkey, as he took the floor as the Chair of the Business20 (B20) Turkey Employment Taskforce: “No need to be Einstein here.” Koç’s unexpected remarks apparently staggered the upper-crust audience of the dialogue meeting in question, which was held on the eve of the G20 Leaders’ Summit on November 15-16 in the Turkish Mediterranean resort-town of Antalya.
The young businessman was making an overt reference to the exponential upsurge in income discrepancies and persistent poverty which has occurred on a global scale, even against a backdrop of historically-high growth rates in the post-WWII era and the immediate aftermath of the Cold War. His speech further underlined the negative spill over effects stemming from the low share of labor income in the global GDP and the lack of labor mobility vis-à-vis the free flow of capital and goods, which are contributing to the current economic malaise.

But if anything could overshadow the glaring irony in the multi-billionaire’s seemingly abrupt outcry which was humorously – if not cynically – caricatured by the wittiest of social media users; it was the undaunted wisdom inherent in Ali Koç’s momentous statement, resonating far beyond the limited scope of Turkey’s 2015 G20 Presidency.

Implicit in Ali Koç’s words was a wake-up call for the international community amid increasingly-popular concerns that we may be approaching yet another critical juncture in modern history. At this moment, the real question appears to be whether major developed and emerging nations will dare to acknowledge the fact that efforts to appease the ever-growing “elephant in the room” by feeding it with more plants have proven futile, or instead will insist on trying to “clear up” more space at the expense of each other. In other words, all signs indicate that there is no room left for empty talk. And finding itself surrounded by geopolitical conflicts, proxy wars, economic crises, and failing states, while bearing the lion’s share of the burden associated with the largest wave of refugees since WWII, no country is better positioned – at least geographically and psychologically – than Turkey to awaken to the unsettling contradictions and multifaceted repercussions of the established economic paradigm’s undeniable failure.

Thus, in the run-up to November’s Summit, the Turkish Presidency had consistently drawn attention at the inextricability of the G20’s core principles – namely sustainable and robust growth – from the developing world’s long-mentioned priorities of financial inclusiveness and the alleviation of income inequalities. At the Summit, Turkey urged the twenty leading economies of the world to take the initiative to spread the benefits of globalization to deprived segments of humanity by way of creating more and better job opportunities; primarily through funding infrastructure investment projects in low income developing countries (LIDCs). The Turkish presidency’s push for effective implementation, with the aim of lending credibility to the G20 by translating the substantive commitments and well-sounding pledges of member states into concrete actions, culminated in the introduction of an accountability framework and country-specific investment strategies to the forum for the first time.

From Turkey to China

On December 1st, Turkey passed the torch to China as the latter took over the G20’s rotational presidency for 2016. For the most part, the two countries’ agendas seem to converge on their signature priorities and initiatives. More importantly, thanks to the immense scale of its population and economy, China can potentially display the willpower and innovative vigour that is necessary in order for the G20 to address Turkey’s calls for deeper-level change in the perspectives and methods employed in global economic governance in a satisfactory manner. This is particularly true as to the central tasks of upholding the path-breaking post-2015 Sustainable Development Goals (SDGs) adopted by the UN last September ensuring deeper policy coherence across the G20’s working streams (the finance and sustainable development tracks first and foremost), and boosting capital flows into the developing world, which largely falls outside the G20 membership barring prominent emerging economies.

China’s highly-anticipated presidential term offers a true opportunity for the G20 to step up the plate once again as the self-styled “steering committee” of global economic governance (notwithstanding its essentially reactionist character in the first place). After seven years of fragile recovery, stalled structural reforms, diminishing world trade, and sluggish growth following the Global Financial Crisis of 2008-2009 (GFC), there is still no better alternative available to the international community today for leading efforts at reforming and reorganizing the global governance architecture in a wide range of key fields from economy and finance to energy and security. The G20 also represents a tremendous advancement over the narrower scope of the elite club of G7 with its facilitation of mutual dialogue between, and joint steps by, developed and emerging nations on an equitable footing.

On top of that, there are no better alternatives than China to lead collective action on a global scale at such a moment of heightened risks and tensions elsewhere. Its economic boom has managed to lift 600 million people out of poverty – and as such represents the most impressive developmental push in world history – and it accounted for up to 50 percent of the world’s cumulative growth in the years following the GFC. Despite the recent slowdown in its economy, China still accounted for over 30% of global growth in the first three quarters of 2015, and it will probably continue to do so at an annual growth rate just over 6% in the forthcoming period. Most importantly, thanks to China’s steep yet sustained rise to becoming the second largest economy and largest trading state of the world in only three decades, the “Beijing Consensus” that is gradually growing to maturity provides the ultimate blueprint for the developing world, subtly inviting others to follow China’s lead.

Yet, it would be unrealistic at this point to expect a miracle from the upcoming G20 Summit of September 2016, as the global economic and political environment presents a rather gloomy picture. It is also true that China has many domestic issues to deal with – including its 13th Five Year Plan to be approved next March and the pressing need for capital market reforms – in addition to its limited experience as a developing nation in overseeing global governance. Still, China can undertake an important mission for the whole world even by unveiling a few major bankable infrastructure projects as part of its comprehensive “One Belt One Road” (OBOR) initiative before the Summit takes place. Facilitating broader coordination between the BRICS New Development Bank and the Asian Infrastructure Investment Bank (AIIB) on the one hand, and the G20’s Global Infrastructure Hub, the World Bank’s Global Infrastructure Facility, the ASEAN Infrastructure Fund and other multilateral financial bodies on the other will contribute palpably to these efforts.

If China can set a successful and genuine example in aligning public and private interests through an innovative growth and investment model to be embodied by landmark cross-border infrastructure projects; it can help address the chronic shortfall in demand and supply constraints on a global scale. Furthermore, China can make better use of its reserves, utilize its over-capacity in various industries, and tap into alternative labor markets by channelling more funds through novel financial instruments into sustainable infrastructure investments across the developing world; thus also helping its trade partners to narrow their balance of payments deficits while allowing them easier access to much-needed foreign exchange. Finally, through a striking showcase of its coming-of-age as a superpower and responsible stakeholder in the world economy, China can better merge its bilateral, regional, and global ambitions together to generate a coherent strategic vision before a global audience.

On the Brink of the Abyss

During his speech at the 2015 G20 Antalya Summit, the official Xinhua News Agency quoted the Chinese President Xi Jinping saying that “the momentum generated by the last round of scientific and industrial revolution is waning, and the potential for growth under the traditional economic system and model of development is diminishing”. Indeed. The current economic and political crisis which looms large over the entire globe could not be summarized more succinctly. Unfortunately, the multi-layered and intertwined problems characterizing the current aura of uncertainty surrounding the global economy hint at a systematic defect, rather than a cyclical turbulence. As grudgingly acknowledged by an increasing number of G20 countries, globalization in its current form apparently failed in its claim to improve the human condition, particularly in the post-Cold War era. This may well be the essential problem underlying a variety of seemingly unrelated issues from climate change to terrorism, demographic bottlenecks, political disintegration, and a tendency towards protectionism.

Against such backdrop, China alone can neither overhaul the entire economic system as a last-minute savoir nor reverse historical trends in the blink of an eye. Nevertheless, the 2016 Hangzhou Summit China is preparing to host possesses the potential to give a fresh impetus to the long struggle to streamline the global development and financial agendas – at least on the surface – through a few but concentrated and pragmatic steps. And even if such tentative steps may be the only viable option the world has in the short-run, the international community has enough reason to pin its hopes on China’s symbolic assumption of economic leadership in global governance next year as the precursor of a long-term legacy.

It is especially the developing world which expects the most from China’s recent assumption of G20 presidency, as demonstrated at the November 15-16 Summit in Antalya. Before and during the summit, neither a business magnate like Ali Koç nor various figures from the upper echelons of the current political leadership in Turkey have seen any harm in voicing their deeply-engrained antipathy towards the unproductive, fictional, and inflated ramifications of financial adventurism; which apparently triggered the seemingly-endless row of major financial meltdowns from the Asian Crisis of 1997 to the GFC of 2008-2009 by undermining the very foundations of functioning and socially-sensitive market economies. Most importantly, Turkey’s outright criticism of the severely-distorted nature of the current manner in which the global economy is run: that is, in a way that discourages productive investments in the real economy and curtails the share of working class incomes, has received the explicit support of all the other developing-country members of the G20. But any tangible shift in widespread economic perspectives and practices on a global scale will certainly require a more convincing and capable flag bearer than Turkey. And last November’s unprecedented show of collective defiance can hopefully motivate pro-activism on the part of China, i.e. the world’s most influential developing country, towards the long-awaited reform of capitalism.

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