Given the weak recovery in the world economy, every single country in the world, including members of the G20, is looking forward to China’s 4I plan (aiming for an innovative, invigorated, interconnected and inclusive global economy) proposed at the onset of China’s 2016 presidency.
This year’s G20 could achieve a number of significant breakthrough results. China’s role is vital in a forum aimed at achieving policy coordination between industrialised economies and emerging economies in order to restore global growth. Before the crisis and until 2014, China’s growth was pursued in a way that is no longer sustainable. The shift to a new normal implies a move towards more sustainable growth worldwide, but also more inclusive, meaning that more developing countries should be able to participate more actively in the international division of labour. A major contribution of China’s presidency this year is a new trade and investment working group. Trade and investment have been the strongest drivers of world growth until 2009, with China as an important player in both phenomena - as the world’s largest exporter and the second largest importer, and the most important trade partner for many advanced and emerging countries. Restoring global growth should start from concrete actions to facilitate trade; in this light the Trade Facilitating Agreement (TFA), negotiated under the auspices of the WTO, is long overdue. But the most severe bottlenecks to a recovery of global trade growth are the low levels of connectivity of a number of countries that have been at the periphery of globalization. That is why China’s presidency has bet on inclusiveness as a major goal to be achieved by raising interconnectivity through digital and physical infrastructure.
Compared with relying on a mix of monetary and fiscal stimulus to deal with lagging economic growth, China brings the concept of innovation at the core of the G20 Summit. At the same time, China sets innovative growth and sustainable development as the core task of the G20 this year. Capital accumulation has been the major driver of growth in the largest emerging economies, especially China, over the last two to three decades. Now that this first stage of industrialization has been achieved, further growth of per capita income cannot come from further investment in physical capital, but has to come from an increase in total factor productivity, that is, from more efficient ways of production. This result can only be achieved through innovation. A further breakthrough contribution of the G20 under China’s presidency could be a serious shift to a more structuralist approach to growth, with the concept of innovation as a growth driver. Although the G20 is not expected to deliver about medium and long term issues, measures to restore growth in the short term cannot be inconsistent with the fact that we have already entered a new phase of globalisation in which digital infrastructure is as important as physical infrastructure to take countries out of poverty and underdevelopment. Measures in favour of digitalisation and improvement of e-commerce have huge positive spillovers on the world economy and allow for greater inclusiveness.
China’s experience in economic development offers a number of lessons to other countries. Three main points are worth mentioning:
- Emphasis on domestic factor advantages by national development plans: any development model or action must start from each country’s potential, and no plain and simple imitation is desirable.
- Lesson learning from other countries’ development models, structures and Institutions: China has followed its own way to growth, but has always been inspired by development experiences around the world.
- Gradualism in reforms: after major faux pas in the 1960s, no big shifts have been planned over the last 40 years: pilot experiences have been the way to learn about how new structures and institutions work in a specific environment.
It remains to be seen whether other countries will be willing and able to take up the challenge of development and support global growth.