from The Internationalist and International Institutions and Global Governance Program

A G20 Agenda for China: Meeting the World’s Infrastructure, Climate, and Development Needs

Chinese President Xi Jinping speaks during the opening ceremony of the Asian Infrastructure Investment Bank (AIIB) in Beijing, China, on January 16, 2016.

April 12, 2016

Chinese President Xi Jinping speaks during the opening ceremony of the Asian Infrastructure Investment Bank (AIIB) in Beijing, China, on January 16, 2016.
Blog Post

This week thousands of government officials, journalists, academics, and private sector and civil society representatives convene in Washington for the spring meetings of the World Bank and International Monetary Fund. But the most important event for global economic governance occurs later this year. And it won’t be in the United States. In September, China will host the eleventh summit of the Group of Twenty (G20) in the eastern city of Hangzhou, one of the country’s ancient capitals.

The choice of location is appropriate. Hangzhou is a potent symbol of China’s meteoric rise—and of its grand ambitions. Eight centuries ago, it was the terminus of the Silk Road, described by Marco Polo as “the most beautiful and prosperous city in the world.” Today Hangzhou, which has seen its population swell from 2.4 to 8.9 million since 2000, is the headquarters of the internet giant Alibaba. President Xi Jinping is using the summit—and this year’s G20 chairmanship—to showcase China’s emergence as the world’s most dynamic economy and, alongside the United States, its most important leader.

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As at past G20 summits, the main focus at Hangzhou will be how to promote sustained global growth, which has proven elusive since the sluggish recovery from the global economic crisis that began in 2007-2008. Stimulating aggregate demand is increasingly important in the face of a slowdown in Chinese growth (to a still-enviable 6.9 percent), anemic performance in the EU and Japan, and contractions in other major economies including Brazil and Russia. At the G20 summit in Brisbane in 2014, leaders committed to add another two percent to the collective G20 GDP by 2018. In Hangzhou, they will assess progress toward this goal.

But the G20 summit also offers China an opportunity to advance international cooperation on three urgent priorities. These include closing a yawning gap between the global demand for and supply of infrastructure financing; ensuring that G20 members not only implement but also ratchet up the climate change commitments they made in Paris in December; and advancing the world’s ambitious sustainable development agenda.

Meeting global infrastructure needs. Satisfying the voracious global demand for airports, railroads, seaports, power plants, electricity grids, housing, waste management, and the like will require investments on an unprecedented scale. It will also necessitate massive technical assistance to help developing countries formulate “bankable” projects and to help ensure that infrastructure investments not only deliver growth but also contribute to positive political, social, and ecological outcomes.

China’s main contribution to date has been promotion of its One Belt, One Road (OBOR) initiative—a modern-day “Silk Road” that promises vast investments in Asian infrastructure to connect national economies to global markets. The OBOR is to be underwritten by bilateral assistance and anticipated funding from the Asian Infrastructure Investment Bank (AIIB) whose creation Beijing spearheaded last year.

However, meeting global infrastructure needs—estimated at $100 trillion over the next two decades—will require far more than the public funding available from wealthy donors and multilateral development banks (including not only the AIIB, but also the World Bank, Asian Development Bank, and others). Moving “from billions to trillions” will entail leveraging private finance, including from traditionally cautious institutional investors, who must be convinced that massive projects with up-front risks and uncertain, long-term payoffs are feasible and sustainable and that they will enjoy a measure of protection if things head south.

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China can begin to square this circle by working with its G20 partners on a financing model that meets infrastructure funding needs over the short, medium, and long term, including through co-investment by bodies like the International Finance Corporation and the Multilateral Investment Guarantee Agency, as well as the development of infrastructure finance as a distinct asset class. Such a pragmatic, multilateral approach would also help the United States and China put last year’s AIIB kerfuffle behind them.

Fulfilling—and exceeding—the Paris pledges. Hangzhou will be the first G20 meeting since the breakthrough twenty-first conference of parties (COP-21) to the UN Framework Convention on Climate Change (UNFCCC), at which countries abandoned the fruitless quest for a legally binding successor to the Kyoto Protocol for a less formal “pledge and review” process. But these “intended nationally-determined contributions” (INDCs) offer little grounds for euphoria, and averting a global ecological calamity will require parties to the UNFCCC to ratchet up their commitments significantly before 2030. The G20, collectively responsible for three quarters of global greenhouse gas emissions, must use the Hangzhou summit to reaffirm their commitment to full implementation of the Paris accord—and to signal their determination to take additional, dramatic steps.

In a promising sign, China has signaled that it is prepared to do precisely that. Meeting with President Obama on the margins of the Nuclear Security Summit on March 31, President Xi pledged to make climate change a major focus of the Hangzhou summit. He also promised, along with President Obama, to ratify the Paris Accord on Earth Day, April 22.

Since its creation, the G20 has focused overwhelmingly on traditional financial and economic issues, restricting its involvement in climate to the elimination of fossil fuel subsidies. What Xi, Obama, and other leaders now recognize is that future growth must be “green growth,” and that the G20 will be critical in building the global political will to transition to a low-carbon economy. Underpinning this reorientation is the awareness that the shift toward climate-friendly policies and technologies can simultaneously advance innovation, competitiveness, and the health of both citizens and the planet.

In the run-up to Hangzhou, the Xi government should mobilize G20 action on climate financing, which will require many multiples of the $100 billion that wealthy donor governments have committed to provide the Green Climate Fund by 2020. This will ultimately include new financial instruments, including green climate bonds, capable of attracting institutional investors, to support projects from reforestation to clean power plants.

Sustaining global development. Since the economic reforms launched by Deng Xiaoping in 1978, the Chinese government has managed to bring some 680 million people out of extreme poverty. China’s dramatic transformation has reinforced the Xi government’s intent to place global development at the heart of the Hangzhou agenda.

The timing, certainly, could not be better. Last autumn, the UN General Assembly unanimously endorsed a set of seventeen Sustainable Development Goals (SDGs), intended to drive development policy and investments through 2030. Achieving these ambitious objectives, however, will require high-level political attention of the sort only the G20 can provide.

The G20 has already dipped its toe in development waters, of course, beginning with the Seoul summit in 2010. Indeed it has helped shift the development conversation away from official assistance—the traditional preoccupation of the Western Group of Seven (G7) donors. At Hangzhou, China and its G20 partners should endorse the core message of last July’s UN Financing for Development summit in Addis Ababa, which emphasized domestic resource mobilization—that is, funds from public and private sectors in developing countries themselves—to achieve the SDGs.

Finally, China can use the Hangzhou summit to share its own experiences with urbanization. At the heart of China’s development has been massive migration from villages to cities. This pell-mell urbanization is increasingly the global norm. By 2030, the number of cities of more than a million will rise to 650. On balance, these trends are positive: cities tend to be hubs of innovation and generators of wealth. But the mega-cities of tomorrow may exacerbate inequality and spawn teeming slums, posing extraordinary challenges to governance and security.

To help the G20 tackle this urban agenda, China should invite to Hangzhou the C40, a transnational network of major cities that former New York Mayor Michael Bloomberg helped create, to share lessons of how to manage the transition to an urban planet. Such a leadership role can also build political momentum going into HABITAT 3—the third UN Conference on Housing and Sustainable Urban Development—scheduled to take place in Quito, Ecuador, in October.

To be sure, the G20’s priority on promoting global growth is well-placed. But as G20 summits have evolved in scope (and expectations have evolved in step), host countries can no longer afford to focus on a singular issue. Nor can global growth be addressed in isolation from other global challenges. The Hangzhou summit offers an opportunity to make progress on a host of issues that can facilitate sustained and sustainable growth over the long run.

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