As 2016 starts to unfold among growing geopolitical uncertainty, China is preparing to chair the Group of 20 this year. It is a historic opportunity for the world's second-largest economy -- and an increasingly important player in the international financial and monetary system -- to make a significant mark on the governance of the world economy.
2015 was the year when China showed its willingness to shape economic governance -- both with the launch of the Asian Infrastructure Investment Bank and the inclusion of the yuan in the IMF's special drawing rights. In 2016 it can cement, through the G-20, those achievements and work toward a new model of governance that no longer emanates from Washington and the Bretton Woods institutions. Will China succeed in steering this debate and converge the G-20 efforts toward building "an innovative, invigorated, interconnected and inclusive world economy," as President Xi Jinping announced in his G-20 2016 inaugural speech? Above all, will it be able to revitalize the G-20 and make it more fit to address the long-term challenges that face the world economy?
Fading role
The G-20 is the premier forum for international economic and financial affairs -- a role it acquired in 2008 in the midst of the global financial crisis. But in the post-crisis years, it has seen this role rapidly shrink. There are many reasons for this: the divergent recovery path of emerging economies and developed countries (the former experienced, first, a stronger and faster recovery than the latter, then faced the adverse spillovers from the monetary policy of the advanced economies, notably the U.S.); the difficulty for the G-20 to agree on a common agenda and its implementation, when the world economy is no longer diving together; and the difficulty of managing the complexity of the several events, documents and people that revolve around the annual presidency.
Thus, the G-20 has not quite managed the shift from being a crisis committee, as it was in 2008 and 2009 -- and, to some extent in 2010-2012, at the time of Europe's sovereign debt crisis -- to becoming a steering committee for international policy coordination. Furthermore, in recent years the agenda has become wider, stretching from trade and development to climate change and food security, while implementation has become patchier. The G-20 has been losing effectiveness and therefore credibility, raising the question of whether there is any point in keeping up such a cumbersome, expensive and time-consuming forum -- especially for the host country.
The Chinese leadership faces the challenge of managing an ambitious agenda -- which seems even broader than in previous years, with an unusually long-term view and a link to the U.N. 2030 Agenda for Sustainable Development -- while at the same time making it relevant. There is no doubt that China will put on a well-choreographed show and attract a great deal of attention. But whether it will make it relevant it remains to be seen.
Measures of success
There are three possible measures of success for this year's G-20. The first one relates to macroeconomic policy coordination. Being one of the five systemically important countries -- together with the U.S., the euro area, Japan and the U.K. -- China should promote more awareness about the spillover impact of some of these countries' policies and encourage the deepening of the international financial safety nets. This brings us to the second measure, which is implementing the reform of the International Monetary Fund and reviewing quotas. If the G-20 has to become the permanent steering committee for the world economy, then the IMF has to be the firefighter with plenty of resources to intervene when financial instability or crises occur.
The third measure of success deals with the reaffirmation of the importance of fiscal policy as an instrument of economic policy. Fiscal policy has been frozen since the global financial crisis, especially in Europe. China can use the G-20 platform to promote good (that is, efficient) public spending and profitable investment as an engine to "invigorate" economic growth. And it can work with the other G-20 member states to identify long-term goals to support "strong, balanced and sustainable" growth and establish a five-year framework to move toward those goals. This framework will address both issues of implementing the commitments made by the G-20 member states and improving the G-20's accountability -- both key objectives for the Chinese presidency.
The Chinese leadership appears committed to improving global economic governance through multilateral institutions. This year's G-20 offers China the chance to show its maturity as a key international player and a counterbalance to the U.S. And while the U.S. and Europe are gripped in the unresolved and widening crisis in the Middle East and domestic political tensions, China's G-20 (and Japan's G-7) should provide some sense of stability, ensuring that the world economy, and politics, stays on track.
Paola Subacchi is director of economic research at Chatham House (the Royal Institute of International Affairs) in London.
