from The Internationalist and International Institutions and Global Governance Program

The G20 Hangzhou Summit: Making Globalization Work

August 31, 2016

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On September 4-5 President Barack Obama attends his final annual summit of the Group of 20 (G20) in Hangzhou, China. The event is a fitting bookend for his presidency. The very first G20 summit took place in Washington just days after Obama’s election, meaning that his administration and the G20 have grown up together. The location is also appropriate, symbolizing how rapidly the global economic landscape has shifted—and how the Sino-American relationship, however fraught, has emerged as the fulcrum for progress on the world’s most difficult problems.

Expectations for Hangzhou are modest—and so they should be. The meeting occurs as the international economy is still absorbing the aftershocks of the Brexit vote and the International Monetary Fund (IMF) has downgraded projected global economic growth in 2016 to 3.1 percent. The G20, which rescued a global financial system in freefall during 2009-2010, has more recently disappointed, failing to emerge as a steering group capable of providing strategic direction for the world economy.

At the working level, G20 governments have launched a dizzying array of worthwhile initiatives on matters from fuel subsidies to anticorruption, with bureaucratic structures to implement them. But G20 leaders have not complemented these technocratic efforts with vigorous efforts to persuade skeptical publics that their governments have a common strategy to advance shared global prosperity. Paul Martin, the former Canadian prime minister who presciently advocated for a leaders-level global forum in 2005, laments, “if [the G20’s] objective is to make globalization work… it has fallen short of the mark.” For the Hangzhou summit to succeed, the assembled world leaders must demonstrate their commitment to make the global economy work for all of humanity, not simply the connected few.

Stuck in the Doldrums

The G20 emerged out of the financial crisis, which convinced the United States and other Western nations that the “old-boy” network of the G7/G8 could no longer manage the global economy. The world needed a new leaders’ forum where major established and emerging powers could meet to hammer out common positions. By including rising powers and leveraging their resources, the world might better provide global goods like financial liquidity, while sidestepping blockages within (and eventually updating) tired international organizations.

Unfortunately, the G20 has failed to become a formidable steering group or to catalyze sweeping global institutional reform. After an admirable, even heroic performance during the financial crisis, its momentum stalled, as the interests and preferences of its heterogeneous membership diverged. The G20 has not given teeth to its own mutual assessment process—a system of peer review intended to discourage members from adopting economic policies with negative consequences for other nations. Nor have G20 leaders advanced a credible, positive agenda involving robust national commitments to get global growth moving again, resorting instead to broad, banal statements of general intent in successive summit communiques.

Equally disappointing has been the G20’s failure to improve cooperation on vexing political questions. When the forum was created, some naïve observers (mea culpa) anticipated that habits of cooperation would gradually help to reduce strategic rivalries, as major powers transferred their experiences of economic collaboration to more politically sensitive issues. These vain hopes exaggerated the socializing power of international institutions. What we have seen instead are deepening regional rivalries, clashing territorial ambitions, and (particularly in China and Russia) the fanning of nationalist sentiments.  From Crimea to Syria to the Scarborough Shoal, the return of geopolitics has exposed the limits of great power like-mindedness. The result is a split screen global order, in which Washington cooperates with Beijing and Moscow on certain issues even as it “pivots” to reassure its Asian allies and joins its European partners in sanctioning Russia.

What is increasingly clear is that the G20’s future depends on the future of the U.S.-China relationship. This should come as no surprise. Even as the G20 was created, the U.S. policy community was abuzz with talk of a “G2”, conceived as an informal Sino-American directorate that would run the global economy. Although the Chinese quickly squashed such talk, the succeeding eight years have captured two inescapable truths: First, China is in a class by itself among rising powers. The fading economic fortunes of the other ballyhooed BRICS (with the partial exception of still lagging India), have reinforced China’s centrality. Second, whether the issue is financial stability or climate change, prior agreement between the United States and China is increasingly a precondition for major breakthroughs in international cooperation. As often as not, the most relevant high table is a table for two.

What China Wants

This brings us to China’s goals for the Hangzhou summit. For Beijing, the meeting offers a high-profile opportunity to showcase its arrival as a bona fide economic superpower, as well as an indispensable bridge between what the Chinese still depict as the advanced “north” and developing “south.” As part of their outreach effort, the Chinese have invited more developing countries to attend than any prior G20 summit. They include Chad (chair of the African Union), Egypt, Kazakhstan, Laos (chair of the Association of Southeast Asian Nations), and Senegal (chair of the New Partnership for Africa’s Development).

The summit also signals China’s aspirations to transform itself from an export-led manufacturing nation into an innovative, technologically advanced, service-focused, and consumer-driven economy. The choice of Hangzhou as host city is no accident. Chinese president Xi Jinping himself oversaw the city’s dramatic transformation into a promising technology hub when he served as the Communist party chief of Zhenjiang province. Today the city is home to e-commerce giant Alibaba, as well as a burgeoning class of private sector entrepreneurs. For Xi, Hangzhou provides a model for national and global development in the information age.

The summit agenda is sprawling. China has identified four top-level priorities: fostering innovative approaches to growth, improving global economic and financial governance, building an open world economy, and promoting inclusive and interconnected development.  But the aspirations don’t stop there. According to foreign minister Wang Yi, China seeks no fewer than ten major results. These range from setting out guiding principles for global investment to creating a new global framework for anti-corruption, supporting industrialization in Africa, and promoting the early entry into force of the Paris Agreement on climate change. Other Chinese officials list additional objectives, from mobilizing support for sustainable infrastructure to securing commitments against exchange rate manipulation.

Each of these agenda items will require years (in some cases decades) of follow-up, adding to the already extensive transnational latticework of working level cooperation among relevant ministries in G20 countries. To the degree that these envisioned commitments can spur action and even innovation, as well as increase harmonization of national approaches, China’s ambitions are laudable.

What is less clear is whether G20 leaders are prepared to coordinate national policies sufficiently on what should be their bread and butter: advancing the “strong, sustainable, and balanced growth” that has been the G20’s top priority since 2009. The G20 has struggled repeatedly to reach consensus about what mixture of macroeconomic tools—including monetary policy, fiscal policy, and structural reforms—are needed to create and support global demand.

This lack of consensus is especially troubling today. At their recent July meeting, G20 finance ministers identified no less than “seven dangers” facing the global economy, including fluctuating commodity prices, low inflation, financial market volatility, political conflicts, terrorism, refugee flows, and Brexit. Observers will be looking at the final G20 communique for a persuasive explanation of how G20 members intend to coordinate their efforts to sustain global demand—much less address these seven looming risks.

Summit-watchers will also look closely at how G20 members respond to China’s desire for a joint commitment to structural reforms. At their April meeting, G20 finance ministers endorsed a suite of measures that Beijing believes can boost global productivity and growth, including reforms to labor markets, trade and investment, and competition policy. But the credibility of any G20 commitments will depend on whether China itself is prepared to set a positive example, by further opening its own protected markets.

In the end, the most important thing G20 leaders assembled in Hangzhou can do is to reaffirm their determination to pursue an international economic order capable not only of delivering growth but also of providing basic living standards and livelihoods to all citizens. Around the world, anti-globalization sentiments are ascendant, empowering populist politicians promising to put their nation first. Preserving a broadly open world economy requires convincing disillusioned publics that global capitalism can benefit more than just the owners of capital, but ordinary citizens as well.