Lan Xue is a professor in and dean of the School of Public Policy and Management at Tsinghua University in Beijing.

Yanbing Zhang is assistant professor in the School of Public Policy and Management at Tsinghua University.

It seems the worst time of the global economic crisis has passed and the world economy is in the process of recovery, though it is also widely believed that the recovery has not been stable. The Pittsburgh G20 Summit has just been held within such a context as the continuation of the previous two summits, which had mainly dealt with saving the world economy from a great recession. Several key decisions have been made at this summit; for example, continuing stimulus polices in order to secure the recovery and restructuring of the IMF and the World Bank to build up a sound international financial system. Obviously, among them, the most important one is to replace the G7/G8 with the G20 as the premier forum for global economic cooperation. A new framework of global governance has launched.

Economic Interests

China expected the summit to achieve concrete progress in promoting world economic recovery, settling the problem of global imbalance, and fighting against trade protectionism. These expectations reflect how deeply China has been integrated into the world economy, and how eagerly it wants an open global market plus a stable international financial system.

Since the global economic crisis started, China’s economic policy makings and the relevant public debates have mainly been around four key issues. The first is how to keep China’s GDP growth around 8 percent this year. It has been reported recently that this will certainly be guaranteed by a surge in credit and fixed investment. The second is how to make sure that China’s investment in the US is safe. Since the US financial system has been rescued and has stabilized, it seems the so-called “miserable 2 trillion foreign reserve” is still safe, at least in the short run. The third is the underlying causes of the financial crisis. China’s policy makers and influential intellectuals are fully aware of these reasons: global economic imbalances, the problems of the international financial system and China’s domestic demand deficiency. China has tried to boost the domestic consumption, but it will take a long time to change its export-oriented development model. The last one is how to prevent the emergence of trade protectionism and commit to free trade.

China had hoped the summit would pay more attention to the development issue and to boost the world economy to achieve long-term and sustained growth. Although some economists in China have pointed out that the recovery of the world’s economy is or will be on the way, many have feared that a premature withdrawal of stimulus measures could lead to a double dip, which may consequently take a heavy toll on the Chinese economy. The Pittsburgh G20 Summit has assured the Chinese that policies to promote sustained economic growth will be kept until a durable recovery is secured.

The agreements to reform the regulatory system are also welcomed by the Chinese public, including plans to raise capital standards, to implement strong international compensation standards aimed at ending practices that lead to excessive risk taking, to improve the over-the-counter derivatives market and to create more powerful tools to hold large global firms to account for the risks they take. Some other economists in China are not optimistic the summit results will secure China’s economic interests. They are quite skeptical about the agreement to fight trade protectionism. Among them, some think that deeds may not be consistent with words since this kind of multilateral international forum cannot take concrete actions to prevent protectionism.

Political and International Interests

As far as the results concerned with political and international interests achieved in this summit, many of them are perceived quite positively in the Chinese media. Although from an international perspective, China is a rising power and has played a more and more important role globally, China still defines itself as a socialist and developing country, in the league of the third world. Ideologically, it still tries to keep its distance from the West or the G8 countries regarding its own political concerns. Thus, China did not want to join in the G8 and had also formally rejected the idea of the G2. G20 means something different because it highlights global economic cooperation and recognizes the importance of emerging-market economies, including China.

In such a background, namely to replace the G8 with the G20, in which China has formal membership, has been perceived as good news for China. It has been perceived as a big step forward since the London Summit. Some media argue that to replace the G8 with the G20 means the world economic order has completely changed; the media declared that “a new era has started.” But in general, it is admitted that it is still impossible for developing countries to have similar rights or status as developed ones at this stage. At the same time, some media have warned that the G20 is still dominated by the US, and China should be careful about its role within the G20. Although the G20 provides a platform for developing countries to speak up, many difficulties and challenges still remain. More measures to improve the developing countries’ rights are needed, and some newspaper articles urge China to take on more responsibilities.

Global Leadership

China has always advocated the reform of the international financial system on the global level and it seems some progress has been achieved at the Pittsburgh G20 Summit. The G20 committed to a shift of at least five percent in the International Monetary Fund (IMF) quota share to dynamic emerging-market and developing countries, as well as an increase of at least 3 percent of voting power in the World Bank for developing and transition countries. It implies that the reform of international financial institutions is speeding up and developing countries’ rising strength is recognized. Chinese media generally welcome it warmly and described it as “a breakthrough [that] has been made for international financial institutions’ governance reform.”

To institutionalize the G20 Summit and to give developing countries more power in the IMF and the World Bank means that the G20 Summit works and that the global governance framework is changing. However, the divergence among major powers is also quite clear, for example, the different views between the US and the EU about how to regulate financial institutions and the sensitive issue between the US and China about their currency exchange rates. Some analysts warned that China shall have a clear idea of the complexity of international environments it is confronting now, and shall not be optimistic about the future development of global governance architecture. Thus, in order to assert global leadership effectively, the G20 Summit still has a long way to go.