By Dr. Abdul Ruff
Globalization and free trade
True globalization and free trade economy have been the top agenda of world economies for quite some time, but, however, practically achieving very little. Both globalization and global trade are being effectively mismanaged and thereby controlled by USA and Europe and to some extend by Russia and China to their advantages. Rest of the world has to bear the negative consequences of restricted globalization and refusal to enact global free trade.
G20, the world’s top economies, is the extended version of G8, the western top economies, incorporating medium/developing economies as well to debate and make decisions on the future goals of world economy. The 2016 G20 Hangzhou summit will be the eleventh G20 meeting. It is planned to be held on 4–5 September 2016 in the city of Hangzhou, Zhejiang. It is also the first ever G20 summit to be hosted in China and the second Asian country after 2010 G20 Seoul summit was hosted in South Korea.
Sandwiched between events like the Brexit vote and the US presidential election, leaders of G-20, the world’s major economies meet this weekend in China presumably to take stock of the Brexit impact on world economy. But the world economies at G20 need to mount a realistic defence of the free trade and globalization they have long championed. At stake is the post-World War Two concord on globalization that proponents say has helped lift so much of the world out of poverty. China, the host of the Group of 20 meeting, has itself been one of the biggest winners from free trade, becoming the world’s leading exporter.
Britain’s shock vote in June to leave the EU and the rise of protectionist Donald Trump in the USA has shaken that accord ahead of the G20 summit in Hangzhou that starts on Sunday.
Hangzhou in China
China as the Olympic host this year, has left no stone unturned, no wall unpainted and no sewer unsealed in getting ready Hangzhou for the G20 Summit, an annual gathering of the leaders of the world’s 20 leading economies. Public offices will close for a special seven-day holiday. Private businesses have been urged to do the same, even though the summit itself only runs for two days. Hangzhou residents will receive 10 billion yuan ($1.5 billion) in tourism vouchers to visit other cities in Zhejiang province (of which Hangzhou is the capital) during the G20. The mayor boasts that a 760,000-strong volunteer force stands ready to serve the G20. One persistent rumor is that the city is spending 160 billion yuan ($24 billion) on the G20. If true, this would be remarkable, eclipsing Rio’s $5 billion expenditure on the Olympics. Many public organizations, however, criticised the government for wasting money in the name of a summit and disrupting ordinary people’s lives against communist principles.
Just 40 minutes west of Shanghai by bullet train, it is one of China’s wealthiest cities. The misty waters of West Lake at its heart, fringed by rolling tea fields, have inspired poets for centuries. In recent years, it has become an entrepreneurial hub, most famously as the hometown of Alibaba, an e-commerce company.
The G20 summit, to be held on September 4th and 5th, will be the first in China in the eight-year history of such meetings and a hugely important diplomatic occasion for President Xi Jinping. He clearly hopes that the event will highlight how central China has become to solving the world’s problems
It came as a surprise when China announced that Hangzhou, a second tier city in the eastern province of Zhejiang, would host the 2016 G-20 leaders’ summit, the political equivalent of the Olympics or the World Cup.
Over the past decade, China has hosted a series of high-profile international events mainly in its first-tier cities, such as the 2008 Summer Olympics and the 2014 APEC in Beijing and the 2010 Expo in Shanghai, in order to showcase the break-neck pace of China’s economic developments since it adopted the Open Door in 1978. Hangzhou, the ancient capital of the Southern Song Dynasty (1127-1279), was traditionally hailed as one of the most beautiful cities in China. The city has been transformed into a home for many high profile tech firms such as e-commerce giant Ali Baba, setting an example of how China’s splendid and rich culture and history in the past can still live on in a modern city with an innovative economy.
China, the economic giant
It’s an image that China wants to promote this weekend to the world’s top leaders, breaking away from its image as the world’s cheap labor factory. For China, it is beginning to catch up with the rest of the world in spending every year on research and development. The percentage is about 2.4% of the GDP, right now. That is close to what the United States is spending. And also, it’s growing at a fast pace. To make that case, Hangzhou is an obvious choice as a G-20 summit venue.
The information economy, championed as a new driving force for economic development in the era of “new normal”, accounted for 23 percent of Hangzhou’s GDP, contributing to over 45 percent of GDP growth in 2015, according to Hangzhou city. It was only natural that questions were raised as to why this relatively obscure city was chosen to host the summit meeting of the world’s 20 largest economies, representing two-thirds of the global population and 85% of the global economy.
President Xi Jinping achieved one of the highest GDP growth rates in China during the period when he held the Communist Party’s top post in this Zhejiang province between 2002 and 2007. World especially the West is eager to know whether China is capable of tackling problems stemming from slowing economic growth and overcapacity, wants to keep the focus of this year’s G-20 summit on economic growth. The summit will look at ways to build “an innovative, invigorated, interconnected and inclusive world economy,” he said.
China remains the world’s major growth engine. Despite all the hand-wringing over the much vaunted China slowdown, the Chinese economy remains the single largest contributor to world gross domestic product growth. For a global economy limping along at stall speed – and most likely unable to withstand a significant shock without toppling into renewed recession – that contribution is all the more important.
The Chinese economy accounts for fully 18 percent of world output – more than double India’s 7.6 percent share. Excluding China, world GDP growth would be about 1.9 percent in 2016 – well below the 2.5 percent threshold commonly associated with global recessions. More broadly, China is expected to account for fully 73 percent of total growth of the so-called BRICS grouping of large developing economies. . Chinese growth would have a much greater effect on an otherwise weak global economy than would be the case if the world were growing at something closer to its longer-term trend of 3.6 percent.
If Chinese GDP growth reaches 6.7 percent in 2016 – in line with the government’s official target and only slightly above the International Monetary Fund’s latest prediction (6.6 percent) – China would account for 1.2 percentage points of world GDP growth. With the IMF currently expecting only 3.1 percent global growth this year, China would contribute nearly 39 percent of the total.
Despite all the hand-wringing over the much vaunted China slowdown, the Chinese economy remains the single largest contributor to world gross domestic product growth. For a global economy limping along at stall speed – and most likely unable to withstand a significant shock without toppling into renewed recession – that contribution is all the more important.
Chinese domestic demand has the potential to become an increasingly important source of export-led growth for China’s major trading partners – provided, of course, that other countries are granted free and open access to rapidly expanding Chinese markets. There are of course the global effects of a successful rebalancing of the Chinese economy. The world stands to benefit greatly if the components of China’s GDP continue to shift from manufacturing-led exports and investment to services and household consumption.
A successful Chinese rebalancing scenario has the potential to jump-start global demand with a new and important source of aggregate demand – a powerful antidote to an otherwise sluggish world. That possibility should not be ignored, as political pressures bear down on the global trade debate.
Unlike the major economies of the advanced world, where policy space is severely constrained, Chinese authorities have ample scope for accommodative moves that could shore up economic activity. And, unlike the major economies of the developed world, which constantly struggle with a trade-off between short-term cyclical pressures and longer-term structural reforms, China is perfectly capable of addressing both sets of challenges simultaneously.
This meeting should send a clear message that world leaders have heard people’s concerns about globalization and are taking steps to better understand and address them. The risk is that nothing much will be achieved. More platitudes about the benefits of global trade and investment will ring hollow.
While there have been recent concessions that not everyone wins out of globalization, the White House has also signaled a renewed push on the controversial Trans-Pacific Partnership (TPP) trade deal as President Barack Obama’s term winds down.
The G20 earned its spurs with a concerted reaction to the 2008 global financial crisis, but recently opposition to free trade seems to have gained purchase and a coherent defence has been lacking. Among the biggest sticking points is overcapacity in the global steel industry, a sore point for China as the world’s largest producer of the metal. Other concerns include barriers to foreign investment, and the risk of currency devaluations to protect export markets.
International Monetary Fund (IMF) Managing Director Christine Lagarde described the global economic outlook as “slightly declining growth, fragile, weak and certainly not fueled by trade and said this week that G20 leaders need to do far more to spur demand, bolster the case for trade and globalization, and fight inequality. The Centre for Economic Policy Research estimates that in the first eight months of 2016 alone G20 governments implemented nearly 350 measures that harmed foreign interests. The jumps in G20 protectionism in 2015 and 2016 coincide ominously with the halt in the growth of global trade volumes.
The Washington-based U.S. Chamber of Commerce fired a broadside at what it saw as creeping protectionism in the information and communications technology sector, releasing a report citing aggressive new measures from China to Russia to the EU. National security was the reason given by Australia’s government when it rejected Chinese bids for an electricity grid last month, a decision that Beijing labeled as “protectionist”.
West is opposed to free trade with developing nations. When EU Commission President Jean-Claude Juncker and EU Council President Donald Tusk set out their priorities for the Hangzhou meeting this week, free trade was next to last. It was preceded by the refugee crisis, jobs growth, financial stability and tax transparency. While the challenge was recognised, no solutions were offered.
The G20 might discuss how to reverse the slowdown in the growth of trade and foreign investment and to communicate the benefits of trade to citizens while addressing their concerns. The critics argue the benefits of globalization are too often over-hyped by politicians, leading to public disappointment.
Obama has promoted the TPP deal as an engine of job creation yet it might add all of 0.5 percent to economic growth after 15 years. The 12-nation TPP is the number one legislative goal of Obama’s remaining term, yet is under assault at home and abroad. Both the main candidates in the November election, Republican Trump and Democrat Hillary, have come out against it, blaming past deals for destroying Americans jobs. If anything, the TPP highlights the divisions within the G20. It was sold as the economic pillar of Obama’s broader plan to shift U.S. foreign policy toward Asia and counter the rising might of the hosts of this very meeting, China.
As China, among other advancing economies are making big strides in capitalist development actions, the G7 leaders USA and EU have brought them also into what is now called the G-20. One of the reasons is to curb fast climate disorder with the help of these developing economies that are also responsible for rising sea levels, threatening the existence of island nations, like Sri Lanka, Maldives, etc.
An officially communist country, China heavily subsidizes capitalist economy of USA, finances the NATO imperialist wars, has been sympathetic to fascist aggression of Palestine by fanatic Israel, killing even children to quench its blood thirst, would not appreciate Kashmiri struggle for freedom from Indian yoke primarily because China also occupies a part of Kashmir, taken from Pakistan as a stolen gift.
The G20 needs to do better in communicating the benefits of free trade, while giving the political push that’s needed to unlock stalled multilateral trade liberalization. Delivering a successful G20 summit in Hangzhou means tackling big global challenges successfully through practical actions benefit the world.
Hopefully, the G20 would seriously consider global free trade mechanism so that all under developed nations also benefit from G-20. It is urgent the G20 nations evolve a strategy for a global free trade treaty.