China's G20: Structural reforms are key

Virpratap Vikram Singh (GH): Director Huang Wei, thank you so much for your time. We wanted to get a better understanding of what China’s G20 presidency means. First off, what are some of its key elements?

Huang Wei (HW): That’s a very good question — because everybody wants to know what China’s emphases are. It’s been a long time since the global financial crisis of 2008, but the world economy is still in a recovery phase, and this process is imbalanced, uneven and not very strong. This year, China will place more emphasis on not just the short-term issues, but the long-term ones too, which could bring some new dynamics to the world economy. That’s very important. The reason I say that is because some scholars and officials have realised that, maybe, nowadays, the world economy is already losing its momentum. This is a key issue not just for China, but other countries as well.

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Long-term issues are not very easy to achieve; so this year, China launched structural reforms as a process. We have already arrived at a consensus on the priorities and principles for this. Of course, these are not binding guidelines for other countries. Different countries will have different priorities and principles. It’s more like a reference, or experience-sharing with other countries, so they can find a better way, or choose a way to carry out some structural reform, which can add some energy to the world economy.

We found that there were so many things we can do for structural reforms – for example, innovation issues, financial market reforms, labour market reforms, and even some trade and investment issues. One could make a package of all this to fit under ‘structural reforms’.

This isn’t the first time this has been proposed: it was actually proposed by Turkey last year, but this year, China launched a new working stream, which is focused on innovation and co-operation. So I think it’s a good start, it’s a good attempt to work out some co-operation and innovation under the G20 platform that could benefit both developing and advanced countries.

GH: Well, it certainly seems like the presidency is going well; congratulations on that. You mentioned structural reforms being one of the more important issues that China is trying to address, but what are some of the other important issues related to the international financial architecture?

HW: That’s an important question — because we still find that there’s a large volatility in international financial markets, which means that maybe we need to do something to make international financial systems better. That’s why, this year, China restarted (or rebooted) the International Financial Architecture Working Group. We hope to facilitate reform within some important international financial organisations, such as the IMF, and Special Drawing Rights. This includes some important issues, such as, the international financial safety net. It is a huge topic, connected to how to stave off financial crises. For example, in 2015 there was a lot of volatility in commodity prices, which was not very good for global growth. We hope to have more stable financial markets, which could support our long-term economic growth.

GH: One of the big problems that the G20 is consistently trying to address is systemic risk. What kind of financial regulations has the G20 been pushing to counter this?

HW: I have to say that the G20 is not the platform for designing a concrete regulation. But G20 could give some pointers on how we can find a more appropriate direction to development. That’s why I have to bring up the financial safety matter again. It’s not a simple question because it means, for example, that nowadays we need to find a solution to countering a financial crisis. We already have some financial safety tools, such as the IMF, for example, which is a global solution for saving countries in a financial crisis. But we also have some regional corporations, such as a BRICS reserve for the poor, which can serve as a resource for some kind of financial liquidity when a country is in the grip of a crisis.

Besides this, we also have bilateral co-operation, such as a currency swap, which is very popular nowadays; I think many countries have such an arrangements.

Finally, many countries do have their own international reserve, which too is a very useful tool in a crisis. But how to make all of this work very well — that is, at the same time — because there are different levels and we lack the ability to make them co-operate with each other. I think this year China hopes to do something to push – we call it ‘multilateral financial system’ — to make it work better.

GH: And lastly, there’s been a rise in new financial institutions – there’s the New Development Bank (NDB) that came up a few years ago; the Asian Infrastructure Investment Bank (AIIB) too. What effect do these institutions have on a pre-existing organisation, like the Asian Development Bank? And does this incoming wave of new financial institutions allow for new ways of working when it comes to new policies?

HW: I have to say that this kind of new, multilateral development bank is a supplement to the existing system, because, recently, we found in many countries that infrastructure, maybe, was a key issue. We need to put more resources into these fields.

Many countries are not very good in their physical situation; so, the government cannot provide enough resources for infrastructure. That means that maybe, on the international level, countries should work together to improve or enhance infrastructure. This is good for every country – not just developing countries, but some advanced countries too that need to upgrade their infrastructure.

The key point here is how to solve the financing issue because if you want to invest in infrastructure, you need a lot of money, and the private sector does not want to put money in these fields because, in the long term, it means that the risk could be high. So AIIB and NDB are meant to be supplements to providing funding in these fields. I think they would be good for long-term economic growth.

You also mentioned a new standard or higher standards. Firstly, these multilateral development banks — such as the new NDB — need to follow the existing rules because multilateral development banks, such as the World Bank, already exist. In Asia, we have the Asian Development Bank. It proves that a new, a fresh bank in development projects funding could be more efficient in using the money at its disposal: this could include how to choose better projects, which could be very important.

The second point is: how to save costs when you operate this kind of bank. But I don’t think these banks will raise the standards too high because that will mean that they will face more risks.

Some countries first need to acquire some infrastructure; then maybe, they can raise standards. For example, in China, we have an old saying: ‘if you want to get rich, firstly you need to have a road.’ The road is a basic demand: that’s simple logic to China. I think since China is one of the main participants in these two financial institutions, some Chinese wisdom will be reflected in them. I think this could be good for other countries as well because we already have plenty of experience in this.

GH: Yes, that’s absolutely true. Thank you for sharing your thoughts.

Huang Wei is the Head of Research for the Department of Global Governance at the Institute of World Economics and Politics Chinese Academy of Social Sciences. This interview was given on the sidelines of the T20 Mumbai 2016, which was hosted in collaboration with IWEP-CASS, SIIS, and RDCY.

Virpratap Vikram Singh is the Website Content Manager at Gateway House

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