G20 needs China’s thought leadership

By John Ross Source:Global Times Published: 2016/9/6 1:33:39

Illustration: Peter C. Espina/GT

Group of 20 (G20) leaders are aware the global economy has not overcome the effects of the international financial crisis. There is a wide understanding that without China's continued economic development since that crisis began anaemic global growth would be even worse.

China's role since the beginning of the financial crisis is merely the culmination of decades during which China's socialist development model far outperformed the Washington Consensus promoted by Western economies. In the wake of the latest G20 summit we should focus on some necessary conclusions. China's economic policy, as developed since Deng Xiaoping and its 1978 economic reforms, has far outperformed Western models. The G20 needs not only China's practical economic role, it needs China's "thought leadership."

As the initial focus of the G20, from its first summit in November 2008, was to deal with the global financial crisis the initial starting point for analysis should be the contribution of G20 countries to the growth of the global economy.

Since the beginning of the financial crisis there have been extreme exchange rate movements. For this reason it is clearer to analyze trends both in current exchange rates and in purchasing power parity (PPP).

Based on current exchange rate measures from 2007-2015, China contributed to 46.3 percent of world GDP growth, the US contributed 21.9 percent and India contributed 5.3 percent. Measured in PPP, China contributed to 29.4 percent of world growth, India contributed 10.8 percent and the US 9.7 percent.

The role of China as the main locomotive of global growth in the wake of the financial crisis is evident whichever of the two measures is used.

Two other striking trends can be seen since the beginning of the financial crisis. The role of the Group of 7 (G7) in regards to world growth is now secondary and the center of gravity in world economic growth is in China and India, not developed economies.

Since 2007, the whole of the G7 has contributed less to global growth than China alone.

Additionally, since the financial crisis global growth has been centered in China and India, the world's two largest developing economies, and has moved away from developed economies. Measured in current exchange rates from 2007-2015 China and India together accounted for 52 percent of world economic growth and in PPPs they accounted for 40 percent of world growth.

It should be noted that India's rapid growth can be considered a sign of China's thought leadership in the global economy. India's Chief Economic Advisor Arvind Subramanian is an expert on China's economy and the author of Eclipse: Living in the Shadow of China's Economic Dominance which argues that China should be considered the world's largest economy.

So far we have focused on global growth since the financial crisis in relatively short-term developments. However, according to the latest World Bank data, more than 83 percent of the world's population live in developing countries. This leaves no doubt that the most important economic issue is achieving economic development.

It is impossible for a developing economy to become advanced in a short period even with the most successful economic strategy. The transition from middle income to high income status, let alone from low income to high income status, requires decades. With that in mind, what is the most successful development strategy?

Some of the fastest growing economies during the period since the neoliberal Washington Consensus was put forward in 1989 follow, or are highly influenced by, China's development model. These are the socialist states of China, Vietnam, Cambodia and Laos.

The fact that some of the most rapidly growing areas in the world economy are influenced by China's economic development also indicates the crucial nature of China's "thought leadership" for the G20 and the global economy.

The facts of global economic development, in particular since the beginning of the international financial crisis, show the G20 does not only need China's key role in the global economy. The G20 also needs China's thought leadership.

The author is a senior fellow at the Chongyang Institute for Financial Studies, Renmin University of China. bizopinion@globaltimes.com.cn

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