Dameisha Forum/Forum Opinions/Structural Reforms in China and other G20 economies –The Challenge of International Policy Coordination
Structural Reforms in China and other G20 economies –The Challenge of International Policy Coordination
Author： Source： Date：2017-09-01
Editor’s notes: Mr. Wolff led us through the recent developments in international policy coordination. The G20 Summit, first launched to react to global financial crisis, is growing into a more influential and effective international policy coordination mechanism. As this year’s G20 Summit in Hangzhou called for “enhanced structural reform agenda” in each country, Mr. Wolff believes that such effective international policy coordination can prompt domestic structural reforms but at the same time has to react to certain challenges.
It’s a pleasure for me to be back in Shenzhen. And I am very grateful to the organizers and sponsors of the important conference to have the opportunity to be here to learn and to speak here. It is the third time for me to be in Shenzhen, and as other speakers have mentioned already, it’s always very interesting to be here and see the progress. I had the opportunity already as a student being in Hong Kong at the end of the 1970s, looking down from the New Territories to the rice fields when Shenzhen was a small village, so I know what progress and reform can bring about in China.
Developments of international policy coordination
So let me in the same way as Paola Subacchi already has started with, talk about international cooperation, emphasizing that international policy coordination is very important for China as well as for all the other countries, particularly the large open economies, which are represented in the G20. It is very important to continue policy cooperation and coordination in macroeconomic as well as in structural policies. When we look back to the financial crisis in 2008 and 2009, the G20 was very successful in avoiding a global downturn by coordinating macro economic stimulus across the large economies, China, U.S, Europe, Japan, and by avoiding protectionist measures, which, as we know from the 1930s, was one of the major policy mistakes leading to the Great Depression. So in the global financial crisis we had to coordinate macro stimulus, fiscal stimulus, monetary stimulus as well as an avoidance of protectionist measures, learning from history. And I think this has saved the world in 2008 and 2009 from a great downturn. This has been a historical moment and we should not forget that it was possible in this time of crisis, to coordinate policies across very different economies, very different political systems just facing the danger of a global crisis. I think we can learn from that and we can also be optimistic even in times of the prevalent criticism of globalization. We can be optimistic that coordinated global policies, multilateral policies can have positive results.
Today we are in a different situation; we are not in a crisis as we have been in 2008 and 2009. We are in a time of a global growth slowdown. Many of the previous speakers have touched on specific aspects of this growth slowdown, and we are looking now much more into long-term policies, as Ms. Paola has pointed to. There is a necessity for policy coordination in monetary and fiscal policies and this has been emphasized at the G20 Summit in Hangzhou. But there is more than before the awareness that we also need coordination of structural policies, also with the view of improving productivity as a prerequisite of growth. As we have heard from several speakers this is a core issue not only for China, but also for other economies. In the Eurozone, for example, we also have the problem of declining productivity, and differences between countries in the Eurozone with regards to productivity development. So we are looking now much more into structural policies as a remedy for this growth slowdown, as a potential policy area for increasing productivity and growth potential. When you look into what the G20 Summit in Hangzhou has put on the table, it is interesting that we do have, as it was mentioned before, the quest for coordinating monetary and fiscal policies. But in the area of fiscal policies and monetary policies there is a limited scope. There are a few countries which have fiscal space, and the IMF is requesting those countries, particularly Germany and some other countries, to use their fiscal space for more public spending. But this scope for fiscal policies is rather limited because many countries still have a large debt stock, and are still in a phase of de-leveraging after the financial crisis. And as we all know, monetary policy has also exhausted much of its potential for growth enhancing measures.
Call for structural reforms
Looking at the G20 Summit, the very important outcome was the so-called ‘enhanced structural reform agenda’. Why ‘enhanced’? There has been already a structural reform agenda at the Brisbane G20 Summit a year erlier, but it turned out that the structural reforms which had been agreed upon have not been implemented, or only to a small extent. In Brisbane each G20 member had put a list of structural policies on the table which they think is important for their country. And this list was relatively long, different of course for each country. You know the list of structural reforms for China: state-owned enterprise reform, financial sector reform and others. In other countries it is more about labor market reform, and in other countries it is about trade and investment policies. Each country has different structural challenges.
In the run-up to the Hangzhou Summit, the structural reforms in the G20 countries were reviewed by IMF and OECD. It turned out that not much has been achieved. So what has been agreed upon in Hangzhou is an ‘enhanced’ structural reform agenda and there are nine areas for structural reforms altogether. Major topics are trade and investment, innovation, altogether it is about increasing productivity. In the new enhanced agenda it has been stipulated that each country will be reviewed, and there will be a peer review among G20 countries to put pressure on each other to really implement the structural reforms. As we know, in most countries, and I think we also have experienced this in China in last few months, structural reforms can hurt and they produce not only winners but also losers, particularly when it comes to the restructuring of industrial sectors. This is always, not only in China but everywhere, a very difficult process, and it is quite normal that this process takes longer than planned.
Opportunities and challenges for international policy coordination
But I think what we can see now is that the peer pressure that the G20 countries put on each other might help to get some more transparency on the structural reforms, and also make it clear that the countries - not only in monetary and fiscal policies but also in their structural policies - are dependent on each other, they depend on the success and implementation of reforms in other countries. Take the example of the digital economy, which is a new subject in the G20 and appears in the Hangzhou Summit declaration. You will find a separate declaration on the digital economy, which is an issue for all G20 countries. In this area it is very important that we have more cooperation and more policy coordination among countries. Take the example of trade. Trade will be affected to a very large extent by digitalization. And for keeping up free trade among the large economies it is important to have common standards and to have open markets also for digital trade, for e-commerce. And it is also important when we look into the Internet security, which is an issue in many countries now, not only for the public sector where documents are leaked, but also for business cyber security is very important. And it is a challenge now that we get to common standards and a common perspective on cyber security, and on the future of the digital economy which has a large potential for increasing productivity in all our countries. This entails challenges with regard to training and retraining of employees and many other areas. It will be a challenge for the G20. The large economies have to take the lead to set new standards and to have a common perspective, a positive perspective on the future of the digital economy which provides us a positive vision for globalization. This would greatly contribute to the critical debate on globalization and prevent the re-nationalization and protectionism that we can see in many places.
I will end with a perspective that will lead us to the next G20 Summit in Hamburg in July next year. The G20 and other multilateral institutions, like the IMF, the World Bank, the WTO, the Asian Infrastructure Investment Bank - which to my knowledge is not a Chinese institution, it is a multilateral institution - are very important for policy coordination, and now more and more for coordinating structural policies and investment in the digital economy, the green economy, and in infrastructure. This policy coordination is new for our countries and we have to learn in order to improve. The processes of peer review and peer learning are very valuable. It is amazing to see that countries as diverse as Russia, Brazil, India, China, U.S, Europe, are able to agree in the G20 on declarations on the enhanced structural reform agenda and the digital economy. This makes me very optimistic with regards to global cooperation and the future of the multilateral system without which neither China nor Europe, nor the U.S can succeed to fulfill their dreams. Thank you very much.
Peter Wolff is the head of the World Economy and Development Financing Department at the German Development Institute. His research areas include global economic governance, development financing and development cooperation with emerging markets.
Speech delivered at the China's Economy and Global Views session during the 3rd Dameisha China Innovation Forum. Opinions expressed here belong to the author, and do not represent the position of SZIDI.
It’s a pleasure for me to be back in Shenzhen. And I am very grateful to the organizers and sponsors of the important conference to have the opportunity to be here to learn and to speak here. It is the third time for me to be in Shenzhen, and as other speakers have mentioned already, it’s always very interesting to be here and see the progress. I had the opportunity already as a student being in Hong Kong at the end of the 1970s, looking down from the New Territories to the rice fields when Shenzhen was a small village, so I know what progress and reform can bring about in China.
Developments of international policy coordination
So let me in the same way as Paola Subacchi already has started with, talk about international cooperation, emphasizing that international policy coordination is very important for China as well as for all the other countries, particularly the large open economies, which are represented in the G20. It is very important to continue policy cooperation and coordination in macroeconomic as well as in structural policies. When we look back to the financial crisis in 2008 and 2009, the G20 was very successful in avoiding a global downturn by coordinating macro economic stimulus across the large economies, China, U.S, Europe, Japan, and by avoiding protectionist measures, which, as we know from the 1930s, was one of the major policy mistakes leading to the Great Depression. So in the global financial crisis we had to coordinate macro stimulus, fiscal stimulus, monetary stimulus as well as an avoidance of protectionist measures, learning from history. And I think this has saved the world in 2008 and 2009 from a great downturn. This has been a historical moment and we should not forget that it was possible in this time of crisis, to coordinate policies across very different economies, very different political systems just facing the danger of a global crisis. I think we can learn from that and we can also be optimistic even in times of the prevalent criticism of globalization. We can be optimistic that coordinated global policies, multilateral policies can have positive results.
Today we are in a different situation; we are not in a crisis as we have been in 2008 and 2009. We are in a time of a global growth slowdown. Many of the previous speakers have touched on specific aspects of this growth slowdown, and we are looking now much more into long-term policies, as Ms. Paola has pointed to. There is a necessity for policy coordination in monetary and fiscal policies and this has been emphasized at the G20 Summit in Hangzhou. But there is more than before the awareness that we also need coordination of structural policies, also with the view of improving productivity as a prerequisite of growth. As we have heard from several speakers this is a core issue not only for China, but also for other economies. In the Eurozone, for example, we also have the problem of declining productivity, and differences between countries in the Eurozone with regards to productivity development. So we are looking now much more into structural policies as a remedy for this growth slowdown, as a potential policy area for increasing productivity and growth potential. When you look into what the G20 Summit in Hangzhou has put on the table, it is interesting that we do have, as it was mentioned before, the quest for coordinating monetary and fiscal policies. But in the area of fiscal policies and monetary policies there is a limited scope. There are a few countries which have fiscal space, and the IMF is requesting those countries, particularly Germany and some other countries, to use their fiscal space for more public spending. But this scope for fiscal policies is rather limited because many countries still have a large debt stock, and are still in a phase of de-leveraging after the financial crisis. And as we all know, monetary policy has also exhausted much of its potential for growth enhancing measures.
Call for structural reforms
Looking at the G20 Summit, the very important outcome was the so-called ‘enhanced structural reform agenda’. Why ‘enhanced’? There has been already a structural reform agenda at the Brisbane G20 Summit a year erlier, but it turned out that the structural reforms which had been agreed upon have not been implemented, or only to a small extent. In Brisbane each G20 member had put a list of structural policies on the table which they think is important for their country. And this list was relatively long, different of course for each country. You know the list of structural reforms for China: state-owned enterprise reform, financial sector reform and others. In other countries it is more about labor market reform, and in other countries it is about trade and investment policies. Each country has different structural challenges.
In the run-up to the Hangzhou Summit, the structural reforms in the G20 countries were reviewed by IMF and OECD. It turned out that not much has been achieved. So what has been agreed upon in Hangzhou is an ‘enhanced’ structural reform agenda and there are nine areas for structural reforms altogether. Major topics are trade and investment, innovation, altogether it is about increasing productivity. In the new enhanced agenda it has been stipulated that each country will be reviewed, and there will be a peer review among G20 countries to put pressure on each other to really implement the structural reforms. As we know, in most countries, and I think we also have experienced this in China in last few months, structural reforms can hurt and they produce not only winners but also losers, particularly when it comes to the restructuring of industrial sectors. This is always, not only in China but everywhere, a very difficult process, and it is quite normal that this process takes longer than planned.
Opportunities and challenges for international policy coordination
But I think what we can see now is that the peer pressure that the G20 countries put on each other might help to get some more transparency on the structural reforms, and also make it clear that the countries - not only in monetary and fiscal policies but also in their structural policies - are dependent on each other, they depend on the success and implementation of reforms in other countries. Take the example of the digital economy, which is a new subject in the G20 and appears in the Hangzhou Summit declaration. You will find a separate declaration on the digital economy, which is an issue for all G20 countries. In this area it is very important that we have more cooperation and more policy coordination among countries. Take the example of trade. Trade will be affected to a very large extent by digitalization. And for keeping up free trade among the large economies it is important to have common standards and to have open markets also for digital trade, for e-commerce. And it is also important when we look into the Internet security, which is an issue in many countries now, not only for the public sector where documents are leaked, but also for business cyber security is very important. And it is a challenge now that we get to common standards and a common perspective on cyber security, and on the future of the digital economy which has a large potential for increasing productivity in all our countries. This entails challenges with regard to training and retraining of employees and many other areas. It will be a challenge for the G20. The large economies have to take the lead to set new standards and to have a common perspective, a positive perspective on the future of the digital economy which provides us a positive vision for globalization. This would greatly contribute to the critical debate on globalization and prevent the re-nationalization and protectionism that we can see in many places.
I will end with a perspective that will lead us to the next G20 Summit in Hamburg in July next year. The G20 and other multilateral institutions, like the IMF, the World Bank, the WTO, the Asian Infrastructure Investment Bank - which to my knowledge is not a Chinese institution, it is a multilateral institution - are very important for policy coordination, and now more and more for coordinating structural policies and investment in the digital economy, the green economy, and in infrastructure. This policy coordination is new for our countries and we have to learn in order to improve. The processes of peer review and peer learning are very valuable. It is amazing to see that countries as diverse as Russia, Brazil, India, China, U.S, Europe, are able to agree in the G20 on declarations on the enhanced structural reform agenda and the digital economy. This makes me very optimistic with regards to global cooperation and the future of the multilateral system without which neither China nor Europe, nor the U.S can succeed to fulfill their dreams. Thank you very much.
Peter Wolff is the head of the World Economy and Development Financing Department at the German Development Institute. His research areas include global economic governance, development financing and development cooperation with emerging markets.
Speech delivered at the China's Economy and Global Views session during the 3rd Dameisha China Innovation Forum. Opinions expressed here belong to the author, and do not represent the position of SZIDI.
