Transcript G-20: Implications on China

G-20: Implications on China
Prepared for:
The School of International Business Administration (SIBA) at
Shanghai University of Finance and Economics (SHUFE)
By Maria Monica Wihardja
Centre for Strategic and International Studies
1
History of the G20
• G20: “extension of G7”
• Evolution:
– 1975 Library Group: senior officials of France, Japan, U.K.,
U.S., W. Germany needed a forum for major industrial
economies
• Adoption of floating exchange rates in early 1970s
• Oil crisis in 1973
– 1975 G-6 Summit: France invited and agreed on annual
summits
• Include Italy
– 1976 G-7 Summit: economic policy coordination group
• Include Canada
• Make up 70% of world GDP and 15% of world population
2
• Evolution (cont):
– 1997 G-8 Summit
• Include the Russian Federation
• Centrally planned economies collapsed (1989 East Germany, 1991
USSR), economic and political landscape changed
– 1999 G-20 Summit
• East Asian financial crisis 1997-1998, Russian crisis 1998
• G-8 started losing legitimacy for solving the global problems
• Emerging economies were excluded from global economic
discussion
• New global challenges appeared (HIV/AID, global warming, etc.)
• However, G-8 remained to be the major economic forum until
2008
• G-8 started losing legitimacy for overcoming the 2008 global crisis.
3
Global Financial Crisis 2008/2009
• G-20 became the Premier Global Economic Forum in
2008:
– G-20: November 2008, Washington, D.C.
• Consider cooperative efforts to cope with the crisis
• Consider financial regulatory reform and international monetary
system reform to avoid future crisis
• Lay foundations for restoring economic growth
– Key policy coordination forum
• Help avert a global meltdown (or another great depression)
• Coordinated central banks’ financial rescues and rapid liquidity
injection (w/ IFIs, EU)
• Coordinated fiscal packages’ enhancement of aggregate demand
and social protection
• Avoid trade protectionism
4
Members of the G-20
•
•
•
•
•
•
•
•
Africa: South Africa
North America: Canada, United States
Latin America: Argentina, Brazil, Mexico,
East Asia: China, Japan, South Korea
South Asia: India
South East Asia: Indonesia
Western Asia: Saudi Arabia
Europe: European Union, France, Germany, Italy,
Russia, Turkey, United Kingdom
• Oceania: Australia
5
G-8
G-20
Membership
G-8
Advanced Industrialized
countries (high-income
countries)
G-20 (G-8 plus additional 11
leading developing countries
(emerging industrial countries
and middle-income countries +
EU)
Shape of World
-GNP
- Trade
- Pop
-56% of the world
- 41%
- 13%
-76% of the world
-61%
-62%
Agenda
World economy (stability and
growth)
Crisis in Financial Market +
World Economy
Approach
Consultation of policies
Cooperation of policies, actions
Mutual Assessment
Focus
-Economic stability and growth
of member economies
- Reduction of poverty in DCs
and resource mobilization
-Review of effects of measures
against the 2008 financial crisis
- Agree on measures against
future financial crises
Approach to
Development
Poverty reduction in DCs (MDGs)
Any added role of middleincome countries
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Development of the G-20 (2009-2012)
• 2009 G-20 Summit, Pittsburgh:
– G-20 recognized as “the premier of global economic forum”
– Framework of Strong, Sustainable and Balanced Growth (FSSBG)
– Raise living standards in emerging and DCs
•
2010 G-20 Summit, Toronto:
– Addressed issues on employment and poverty (long-term issues)
– Narrowing development gap and reducing poverty rate integral to “strong,
sustainable and balanced growth”
– Structural reform as the tools for long-term economic reforms
•
2010 G-20 Summit in Seoul adopted development as the major item of
the agenda
– Agreed on Seoul Development Consensus for Shared Growth + Multi-year
Action Plan+ Financial inclusion action plan
– Development policy options and priorities
– As a complement MDGs
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• 2011 G-20, Cannes:
– Crisis picking-up with no immediate solution
– Endorsed the Action Plan on Growth and Jobs
– Endorsed the Action Plan on Food Price Volatility
and Agriculture
– Endorsed Green Climate Fund
– Formalized Troika, consisting of past, present and
future Presidencies
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• 2012 G-20 Summit, Los Cabos:
– The first time that a developing country hosted a G-20 Summit
– The world was still in the downside-risk of a crisis
– Endorsed the Los Cabos Growth and Jobs Action Plan, balancing growth-job
with austerity and fiscal consolidation
– Promoted Inclusive Green Growth as an integral part of FSSBG
– Food security and commodity and energy price volatility
– Financial Inclusion Peer Learning Program (with Chile and Indonesia)
– IMF raised US$456 billion for its “second-line of defense”, with China
contributing US$43 billion (EMs to push for the 2010 IMF quota and voting
reform)
– Tremendous each-out activities: B-20, Think 20, L-20, Youth -20
– CIGI report on media and public perception:
• Financial regulation reform/ FSB report receive no attention in the 11 G20 capitals
surveyed.
• G-20 losing its focus?
9
Mutual Assessment Process:
From Pittsburgh to St. Petersburg
• At the 2009 G-20 Summit in Pittsburgh:
– MAP was launched to evaluate the consistency of G-20 policies and
frameworks with members’ share growth objectives (FSSBG)
– MAP is a new approach to policy collaboration and owned by members of the
G-20, with the goal to ensure that collective policy action will benefit all.
• At the 2010 Summit in Seoul:
– “Outlining an action-oriented plan with each member’s concrete policy
commitments”
– “Persistently large external imbalances, assessed against indicative
guidelines… warrant an assessment of their nature and the root causes of
impediments to adjustment as part of MAP…”
• Three pillars:
– MAP analysis
– Policy progress accountability
– Assessment of imbalances (by setting up indicators and indicative guidelines)
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MAP
•
•
•
•
•
The first stage of the MAP: From Pittsburg (2009) to Toronto (2010)
– Aggregate G-20 members’ policy and macroeconomic frameworks
– Assess whether members’ policies would help achieve the G-20’s objectives and evaluate alternate policy sessions
The second stage of the MAP: From Toronto (2010) to Seoul (2010)
– An enhanced MAP, with indicative guidelines for key imbalances
– Policy commitments by the G-20
The third stage of the MAP: From Seoul to Cannes
– Paris Meeting (February 2011)
• G-20 authorities reached agreement on the key indicators: public debt, fiscal deficits, private saving rate,
private debt, and the external balance composed of the trade balance and net investment income flows and
transfers
• Seven systemic imbalance countries: China, India, Japan, France, Germany, UK, and US
– Washington D.C. Meeting (April 2011)
• G-20 authorities reached agreement on the Indicative Guidelines to identify the presence of large imbalances
– In-depth analysis of large imbalances
– Progress reports
– Updated frameworks
The current stage of the MAP: Post-Cannes
– Near-term actions
– Medium-term Policy Imperatives
G-20 Los Cabos Summit
– The Los Cabos Growth and Jobs Action Plan
• The Los Cabos Accountability Assessment Framework
• The Los Cabos Accountability Assessment (first assessment)
– Policy Commitments by G-20 Members, including updates to progress reports
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Reducing Imbalances
• To achieve FSSBG, “two rebalancing act” is needed to resolve:
– Internal imbalances
• Focuses mainly on public finances
– External imbalances
• Focuses mainly current account
– Internal and external imbalances are interlinked via the “S-I=NX”
identity
• Imbalances are NOT prima facie “bad”
– They warrant remedial action only to the extent that they are
underpinned by distortions
– Imbalances can be beneficial if they reflect the optimal allocation of
capital across time and space
– Imbalances can be detrimental if they reflect structural shortcomings,
policy distortions or market failures.
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Explaining Imbalances
• Sources of external imbalances in the run-up
to the crisis vary widely across the seven
economies
– Largely reflecting factors that have led domestic
saving behavior to differ widely
Private Saving (S-I)
Public Saving (I)
China
Public Dis-saving (I)
(India), Japan, (France),
Germany
Private Dis-saving (S-I)
(United States), (United
Kingdom)
• Country in bracket denote those with current account deficits
13
• Countries with current account deficits:
– Have low public and private saving (United Kingdom
and United States), or
– Have low public saving, which has been offset by high
private saving (France and India)
• Countries with current account surpluses:
– Have high national saving, that exceeds high private
investment (China), or
– Have high national saving and low investment, which
has offset high (modest) public dis-saving in the case
of Japan (Germany)
14
Explaining Imbalances
• A variety of structural and equilibrium factors have driven public saving
behaviors
• Factors underpinning fiscal deficits include:
– Japan:
•
•
•
•
persistently low growth, reflecting a decline in productivity
a shrinking labor force
low investment
the needs of a rapidly aging population
– France, UK, US:
•
•
•
•
Structural imbalances between tax revenues and spending commitments pre-crisis
Underfunded entitlement obligations
The lack of agreement on fiscal adjustment priorities
The lack of fiscal rules and strict enforcement mechanisms to impose sufficient
budgetary discipline
– India, Japan, US:
• Political economy considerations exerting strong pressures on spending and resistance to
raising taxes
• A weak revenue system and financial repression (India)
15
• Domestic policy distortions have also played an
important role in driving imbalances:
– Distortion in financial systems have fueled low private
saving and large current account deficits
• UK and US:
– Regulatory and supervisory frameworks distortions were partly
responsible for a fundamental breakdown in market discipline and
mispricing of risk
– High national saving in China reflects significant underlying
distortions
• China:
– Inadequate social safety nets, restrictive financial conditions, and
undervalued exchange rate subsidized factor costs, limited dividends and
lack of competition in product markets
– This in turn creates massive reserve accumulation, contributing to the
low-cost financing of US current account deficit
16
– Weak investment in some advanced economies
also reflects policy distortions
• Japan:
– Private investment growth (particularly by SMEs) has
remained weak, while corporate savings are large
• India:
– Tight financial restrictions have allowed the perpetuations of
large fiscal deficits
• Germany:
– Distortion in the financial sector may be a drag on domestic
investment
17
Policy Implication
• Sustainability assessment indicate that imbalances have
been driven primarily by saving imbalances
– Too low in major advanced economies
– Too high in key emerging surplus economies
• Policies tailored to individual country circumstances are
needed to facilitate the “dual rebalancing” acts and to
anchor members’ growth objectives
– France, Japan, UK, US
• Fiscal consolidation
– China
• Reduce distortions that have kept saving exceptionally high
– Japan and Germany
• Lower corporate saving and boosting investment by reducing
distortions
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4 Groups of the G-20:
Policy Prescription
Advanced economies
Surplus Countries
Deficit Countries
Product and labor market
reforms
Credible fiscal
consolidation over the
medium term
(Australia, Canada, France,
Italy, UK, US)
(Germany, Japan, Korea)
Emerging economies
Rebalancing of demand
towards domestic sources
(Argentina, China, Saudi
Arabia, Russia)
Supply measures to
strengthen growth and
employment
(Brazil, Mexico, Indonesia,
South Africa, Turkey)
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Structural Reform (SR)
• SR have to be included as parts of the strategies in the new
growth model:
– “The old growth path has become unbalanced, inefficient and
unsustainable because market reforms that have encouraged it
are incomplete. Goods markets have been liberalized but other
markets are still heavily distorted.” (Drysdale et. al., 2009)
• SR can be defined as:
– “Measures to improve institutions and incentives for efficient
and sustainable production, investment and employment, and
facilitate fundamental, productivity-increasing changes in the
economic structure”
– “Behind-the-border" reforms
– They are medium to long-term reforms
20
Why G-20 Leaders Discussed
Structural Reform?
• Structural reforms are the keys to rebalance the global
imbalance that some experts have argued contributed
to the global financial crisis in 2008:
– Huang (2010) hypothesized that the global imbalance was
partly rooted in China's factor market cost distortions that
artificially boosted China's export competitiveness and
inflated China's current account surplus
– In the West, easy credits had lowered savings and
leveraged consumption, while deregulated financial
market had resulted in excessive leverages of borrowing.
– Excessive savings in the East Asian surplus economies had
then been used to finance excessive consumption and
"unfruitful" investments such as the housing market in the
deficit economies in the West.
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Why G-20 Leaders Discussed
Structural Reform?
Estimated reduction in potential output (in %) in many developing countries, after the
2008 crisis
Source: OECD
22
Why G-20 Leaders Discussed
Structural Reform?
Structural reform can do much to sustain growth and reduce global imbalances
Policy simulations, 2016-25 average
4.0
3.5
World GDP growth
OECD gross government debt
in per cent
in per cent of GDP
Baseline
Fiscal consolidation²
Fiscal consolidation² + structural reform
3.0
140
120
Baseline
Fiscal consolidation²
Fiscal consolidation² + structural reform
Global imbalances¹
in per cent of world GDP
3.5
3.0
100
2.5
80
2.0
60
1.5
40
1.0
0.5
20
0.5
0.0
0
0.0
Baseline
Fiscal consolidation²
Fiscal consolidation² + structural reform
2.5
2.0
1.5
1.0
1.
A summary measure of global current account imbalances is constructed as the absolute sum of current balances in each of the
main trading countries or regions.
2.
Fiscal consolidation including exchange rate response.
Source: OECD calculations.
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China and the G-20:
Why the G-20 is Important to China?
•
•
•
•
The G-20 offers a good opportunity for the emerging economies to play a bigger role on
the world stage:
– Hu Jintao in 2009: “As a platform with wide representative, the G-20 can help the
international community to deal with the international financial crisis.”
The increasing interdependence among different domains:
– Economic relations, climate change, nuclear threats, and the spread of infectious
diseases
– Major organizations, such as WTO, IMF, BIS, WB, and WHO, were designed for a
specific domain
The requirement of execution in international affairs:
– The rising importance of the spillover effects in macroeconomic and financial
stability
– The IMF’s unsuccessful role in the multilateral surveillance
The broader representation with efficiency:
– Include almost all the systemic importance countries, both major developed and
key emerging countries
– The G-20 has more legitimacy than the G7/G8 and has more efficiency than the
UN.
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China’s view on the G20
• China sees the G-20 as the best way to relate to the rest of
the world
– It did not otherwise have a spot at the head table
• China sees the G-20 as the best way to work towards a
reshaping of the international order to more closely
resemble a ‘shareholding’ model, away from the current
model of a ‘US-owned family business’.
• The world order should be established upon the principle
of multilateralism since the post-cold war era
• China’s diplomatic strategy:
– Keeping a low profile and taking a proactive role when feasible
• Generally the attitude of Chinese government towards the
G-20 is positive
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Political Benefits to China
• A chance to participate in global coordination
– From a passive state to a proactive state
– From outside to inside
• A chance to learn global governance
– Emerging markets have less experience with the peer
review process, which have facilitated policy coordination
• A chance to represent Chinese position and build
China’s external image
• A way to facilitate the adjustment of domestic
economic structure
– External strength can help China’s domestic reforms
26
Respect Each Other’s Red Line
• China does NOT support the use of real
exchange rates as indicators of monitoring
world economic imbalance:
– Exchange rate could be one of the reasons, but
not the only reason to imbalance
– The optimal policy may or may not imply a
reduction in the deficit or surplus
27
China’s Red Line
•
China does NOT support the use of international reserves as indicators of
monitoring world economic imbalance:
– The International reserve is a by-product of external imbalance and a result of
unreasonable monetary system
– Reserve accumulation can provide protection to the economy against sharp
reversals in capital flows
– China is not the only country that has accumulated a great amount of foreign
exchange reserves
– Almost two-thirds of China’s trade surplus is created by foreign investment
• Its accumulation of foreign exchange reserves is a win-win outcome for both
China and foreign investors
– There are other countries that have maintained a trade surplus for a prolonged
period of time
• For instance, Germany has kept this surplus for 58 years and Japan for 29
years. China has had it only since 1997
– Technical factor matters
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The features of China’s Old
Development Model
• Investment-driven:
– Low commodity price, low energy and environmental
cost (distorted factor prices)
– Low interest rate (an implicit welfare transfer from
household sector to enterprise sector)
• Export-oriented:
– The natural result of strong investment and weak
domestic consumption
– Significant undervalued RMB exchange rate
– Demographic surplus (nearly infinite supply of
unskilled labor)
29
The consequences of China’s old
development model
• The low consumption ratio and high investment ratio
• Significant current account surplus
• Even worse, the twin surplus (huge foreign exchange
reserve accumulation)
• Industry imbalance (overdeveloped manufacturing
industry and underdeveloped service industry, which
leads to low service consumption)
• Strong SOEs and weak small and medium size private
enterprises
• Over-reliance on loose monetary policy (high
monetized economy)
30
China’s economic growth relies heavily
on investment and export
Percent of GDP
60%
50%
40%
30%
20%
10%
0%
Private Consumption
Source: CEIC .
Fixed Capital Formation
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
-10%
Net Export
31
Even compared with the high growth era of developed countries, China’s
private consumption expenditure to GDP ratio is extremely low
Private Consumption to GDP Ratio
90%
80%
70%
60%
50%
40%
United States
Source: CEIC .
Japan
Germany
China
2009
2005
2001
1997
1993
1989
1985
1981
1977
1973
1969
1965
1961
1957
1953
1949
1945
1941
1937
1933
1929
30%
And China’s investment to GDP ratio is
extremely high
Fixed Asset Formation to GDP Ratio
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
United States
Source: CEIC .
Japan
Germany
2009
2005
2001
1997
1993
1989
1985
1981
1977
1973
1969
1965
1961
1957
1953
1949
1945
1941
1937
1933
1929
0%
China
33
Japan, Germany and China all have a
significant currency account surplus
Current Account to GDP Ratio
12.0
10.0
8.0
6.0
4.0
2.0
0.0
-2.0
-4.0
-6.0
United States
Source: IMF’s WEO .
Japan
Germany
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
-8.0
China
34
China has a persistent twin surplus since 1999,
and U.S.’s overall BOP is more balanced
China
United States
1,000.0
450.0
800.0
400.0
350.0
600.0
300.0
400.0
250.0
200.0
200.0
0.0
150.0
-200.0
100.0
-400.0
50.0
-600.0
0.0
-800.0
-50.0
-1,000.0
Current Account
Source: CEIC .
Capital and Financial Account
Current Account
Capital and Financial Account
35
And the same for Japan and Germany
Japan
Germany
250.0
300.0
200.0
200.0
150.0
100.0
100.0
50.0
0.0
0.0
-50.0
-100.0
-100.0
-200.0
-150.0
-200.0
-300.0
Current Account
Source: CEIC .
Capital and Financial Account
Current Account
Capital and Financial Account
36
China is a major international creditor, but the investment
income is very small if compared with other countries
Overseas investment income to GDP ratio
4.0
3.0
2.0
1.0
0.0
-1.0
United States
Japan
Germany
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
-2.0
China
Source: IMF’s WEO.
37
The Manufacturing sector in China is
very large
The output of second industry to GDP ratio
50%
45%
40%
35%
30%
25%
United States
Japan
Germany
Including mining, manufacturing, construction and utility.
China
Source: IMF’s WEO.
38
The service sector in China is
significantly underdeveloped
The output of service industry to GDP ratio
75%
70%
65%
60%
55%
50%
45%
40%
35%
30%
United States
Japan
Germany
China
Source: IMF’s WEO.
39
China has a relatively lower fiscal deficit
Fiscal Position to GDP Ratio, %
4.0
2.0
0.0
-2.0
-4.0
-6.0
-8.0
-10.0
-12.0
United States
Japan
Germany
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
-14.0
China
Source: IMF’s WEO.
40
China has a much lower public debt
Public Debt to GDP Ratio, %
250.0
200.0
150.0
100.0
50.0
United States
Japan
Germany
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
0.0
China
Source: IMF’s WEO.
41
China’s M2 to GDP ratio is extremely high
M2 to GDP Ratio
200%
180%
160%
140%
120%
100%
80%
60%
40%
20%
United States
Source: CEIC .
Japan
German
China
42
Why does China have to change its
development model?
• The shrinkage of external demand after the burst of global financial
crisis: the deleveraging of U.S. households; the deepening of the EU
Zone debt crisis
• The excess capacity and low yields of China’s huge investment of
manufacturing and infrastructure due to the weak domestic
consumption
• New NPL wave and fiscal problem
• The demographic surplus is vanishing
• The bottleneck of energy and commodities (China’s term of trade is
exacerbating)
• The safety of foreign exchange reserve suffering new potential
shocks
• The risks of higher inflation and asset price bubbles are looming
43
China’s Policy Commitment to
the G-20 and Its ‘Significant’ Progress
• Fiscal policy:
– Continue to implement a pro-active fiscal policy
• Reduce the fiscal deficit to around -1.5% of GDP (2012)
• In 2011, it was -1.8% of GDP
– Strengthen efforts to manage local government debts and
prevent risks
• Further improve the structural tax reduction policies
– Raising the individual income tax threshold on salaries from 2000 yuan to
3500 yuan per month and adjusted the tax rate base
– Continuing to implement preferential income tax policy for some small
businesses with low profits and initiating a series of relief and exemption
policies for tax and fee
– Putting into effect lower provisional import tariffs on over 700 resource
products, basic raw materials and key components
• Strictly control new debts of local governments
44
– Significantly enhance the ability of fiscal macroregulation, further optimize the structure of fiscal
revenue and expenditure, make further progress
in fiscal and taxation reform, improve the scientific
and meticulous management of public finance,
and build a fiscal and taxation system conducive to
the transformation of economic development
pattern (2011-2015).
• Continuing to expand household consumption
• Supporting to improve people’s living standards
• Advancing the fiscal and taxation reform
45
• Monetary and exchange rate policy
– Implement a prudent monetary policy and keep
FRE (Aggregate Financing to the Real Economy) at
at an appropriate level. (2011, 2012)
• Broad money supply (M2) increases by 16% in 2011 and
14% in 2012
– Improve conduct of monetary policy
• Optimize monetary policy target system, improve the
transmission mechanism and environment of monetary
policy
46
– Further promote the reform of RMB exchange rate
regime (Medium-term to long-term)
• As of March 30, 2012, the central parity of RMB/USD
exchange rate appreciated by 5.22% since the end-2010 and
31.49% since July 2005.
• As of February 2012, RMB REER appreciated by 30.28% since
July 2005, ranking 4th in the 58 countries in terms of
appreciation.
– Promote foreign exchange management regime
reform
• Foreign reserves grows at a slower pace, and even declines
in late 2011
47
– Expand the use of RMB in cross-border trade and
investment
• In Dec. 2011, RMB Qualified Foreign Institutional Investors scheme
was launched, allowing HK-based subsidiaries of mainland fund
management companies and securities companies to use RMB
raised in HK to invest in securities in the mainland.
• In March 2012, all qualified enterprises were allowed to settle
exports in RMB
• Capital account convertibility
– With regards to RMB FDI, the process of capital verification inquiry and
reinvestment is streamlined, and the approval process for purchase and
payment in foreign exchange is removed.
– Both domestic and foreign funded enterprises are allowed to use foreign
currency receipts as collateral to obtain RMB loans
48
• Financial sector policy
– Further promote financial reforms
•
•
•
•
Deepen the reform in financial institutions
Optimize modern financial corporate system
Strengthen internal governance and risk management
Accelerate the development of multi-level financial
market system
• Promote the establishment of a counter-cyclical macroprudential policy framework
• Strengthen the financial regulation and improve
financial supervision coordination
49
• Structural Reform
– Promote the strategic adjustment of economic structure (2011-2015)
• The household consumption rate increases
– Demand structure become more balanced among investment, consumption and export
– In 2011, domestic demand contributed 106 % to growth
– Contribution of final consumption rose to 52%, compared with 42% in 2010
• Promote a basically balanced BOP account
– Trade surplus falls to a six-year low, decreasing by 48% from 2008-2011, from 6.7 percent of
GDP to 2.6%
– Current surplus as a percent of GDP drops from the record high of 10.1 in 2007 to 2.76 in 2011
– Policy adjustments have been made that remove barriers, including encouraging the use of
foreign exchange, encouraging imports, and accelerating the Going Global Strategy
– Outward investment averaged, 39.1bilion USD annually from 2006 to 2010, up 870% from the
average level in 2001-2005
– In 2011, China announced a zero tariffs treatment for imports under 97% items from least
developed countries
• Accelerate the development of the service sector and raise its value-added contribution
to the GDP by 4%
– Increase the urbanization rate by 4%
– Urbanization rate exceeds 50% as end-2011
• Increase spending on R&D to 2.2% of GDP
50
– Comprehensively improve the people’s well-being (2011-2015)
• Create and extra 45 million urban jobs and keep registered urban employment no higher
than 5%
– Urban registered unemployment rate stayed at a low level of 4.1% at end-2011
– Household income keeps increasing in 2011
• The per capita disposable income of urban residents and the per capita net income of
rural residents will rise by an average annual rate of over 7% in real terms.
– Household income keeps increasing in 2011, with net per capita income of rural residents up by
11.4% in real terms, the highest rate since 1985
– Per capital disposable income or urban residents up by 8.4% in real terms, representing a
closing income gap
• Increase the proportion of expenses for medial treatment paid out of the medical
insurance fund to over 70% in accordance with relevant policies
– Universal coverage of medial insurance is achieved
– Government subsidy for medial insurance keeps increasing
– Over 75% of hospitalization costs is now covered for urban employees, and 70% for urban and
rural residents treated at designated hospitals at or below level two
• Low-income housing will be made available to around 20% of the country’s urban
households
– In 2011, spending on affordable housing project by the central government rose by 220 percent
yoy to 171.3 billion yuan
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China’s Global Prospects
• The reforms in the past decades have been very successful, yielding
average annual growth of 10%
• The Chinese economy will be as large as the US economy at
international PPP measures by 2020-22 and it will continue to grow
thereafter
– PPP measure of Chinese GDP place it around 90% of the US today
– By International PPP measure (national accounts converted to the
then exchange rate), the Chinese economy has grown from being 11%
of the US economy at turn of century 54% this year
– Rate of convergence was 10% between 2000-2007, 14% between
2007-2011 and around 12% this year
• But, China has to move away from the old development model to
the new development model
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• Given its low current account surplus in 2012
(about 2% of the trade surplus), it was no
longer possible to claim that China was
making a significant contribution to global
imbalances
• This external rebalancing is linked to the
steady appreciation of the Chinese currency
and market pressures at home.
53
• The internalization of the RMB
– There is a potential deadline of such reform to be carried
out in 2015 when IMF revises currency basket that makes
up the SDR
• Economic risks that China faces:
– The most important reform needed to avoid risks to
Chinese growth is the liberalization of capital markets and
the capital account
– Chinese government is concerned about the risk of
inflation if capital account is liberalized while exchange
rate controls are maintained
– State capitalism becoming an important objective again
since the 2008 GFC is seen as a risk
54
• Other risks that China faces:
– Climate risks
– Domestic political risk
– Internal instability resulting from income
inequality
– Risk of fracture in the international system if a
better way of managing relations between states
is not found
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Summary
• With growing inter-dependence across domains, the G-20 is important
and necessary to China
• China sees the G-20 as the best structure of global governance with
respect to creating a balance between legitimacy and efficiency, and as
the best way to relate to the rest of the world
• China’s old development model is no longer sustainable because it creates
both internal and external imbalances
• The G-20 can help China perform its structural reforms to reduce these
internal and external imbalances
• The success of the Chinese government in dealing with structural change
in the past is seen as a cause for optimism
• China faces tremendous prospects to play a greater global role, not only in
term of economic but also other non-economic sectors
• However, it also faces tremendous risks should it fail to reform both
economically and politically.
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References
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Blancard, Olivier, “A problem shared is a problem halved: the G-20’s Mutual Assessment Process,” iMFdirect, August 26,
2012
EABER-SABER roundtable and public forum digest, “Thinking about the Asian Century,” Canberra, April 17-18, 2012
Hadiyanto, Andin (Center for International Cooperation Policy, Ministry of Finance), “Structural reforms in the G-20,”
presented at CSIS Seminar, “Indonesia’s structural reforms commitment at the G20 and APEC,” August 2, 2011
IMF, The G-20 Mutual Assessment Process, FactSheet, (http://www.imf.org/external/np/exr/facts/g20map.htm)
IMF, 2012 IMF Staff Reports for the G-20 Mutual Assessment Process (http://www.imf.org/external/np/g20/map2012.htm)
Konrad Adenauer Stiftung International Symposium, “The G-20 Processs: Perceptaions and Perspectives for Global
Governance”, Seoul, May 26-27, 2011:
– Ming Zhang (Institute of World Economics and Politics, CASS), “The Transition of China’s Development Model” (slide
presentation)
– Huang Wei (Institute of World Economics and Politics, CASS), “A Chinese Prospective to the G20” (slide presentation)
– Jiang Shixue (Institute of European Studies, CASS), “China-EU Cooperation in the G20” (slide presentation)
Lee, Kye Woo (KDI School of Public Policy and Management), “Why Development and MDGs at G-20 Summits,” materials
from the G-20 Korea Global Leaders Fellowship Seminar, April-May, 2012
The G-20 Los Cabos Summit, 2012
– The Policy Commitments by G-20 Countries, Los Cabos, 2012
– The Los Cabos Growth and Job Actions Plan, Los Cabos, 2012
Author’s various personal notes
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