On the day after the Cannes G20 summit concluded, the lead article in The Guardian stated that Cannes “showed how power has shifted to Beijing.” In Le Monde, it was reported that China will likely become the second-largest contributor to the International Monetary Fund (IMF).
It would be wise to avoid the China hype. Nonetheless, the signs are that Beijing will increase its contributions to the IMF in the not-too-distant future.
Assuming this happens, what can we expect next from China?
It should not surprise us if China asks for some changes in how the G20 approaches its core task of setting the conditions for “strong, sustainable, and balanced growth.”
Beijing, along with the other member countries, agrees that the G20 must adopt comprehensive action across all policy levers, and implement the measures in a globally coordinated way.
For Chinese authorities, there is no problem with this basic premise.
Where there is concern, however, is with the G20’s Mutual Assessment Process (the so-called “MAP”). The concern here is that the core working agenda of the G20’s Working Group 1 is informed by research and analysis that is not sufficiently impartial.
But Beijing’s concerns run deeper than the G20. They reach into the IMF — one of the pillars of the global summitry architecture — which has been enrolled at the “request of the G20” to supply the technical analysis to evaluate whether members’ policies fit together, and if not, then to recommend the adjustments that are needed.
The problem is, as Chinese authorities noted going into Cannes, that Beijing’s long-standing concerns about the evenhandedness of the IMF were reignited by the latest “Consolidated Multilateral Surveillance Report,” which was issued by IMF staff in September 2011.
The main finding in the report was that, over the medium run, external rebalancing is now more important than ever, and that to offset weaker demand in major advanced partner economies, internal demand will need to increase elsewhere, notably in the emerging surplus economies.
This report added to the US pressure that Beijing faced going into the summit, to agree on wording in the summit communiqué that surplus countries, especially China, would give more emphasis to internal growth and demand — which most would agree, means de facto less attention to exports.
The Fund’s report also highlighted that, so far, external rebalancing has been driven mainly by weak domestic demand in advanced deficit economies, rather than strong demand in emerging surplus economies.
While Beijing did agree to the aforementioned wording in the Cannes communiqué, as well as additional language about “market determined and more flexible exchange rates,” and US Treasury officials may see this as vindication of their instrumental use of global summitry, the sense of satisfaction inside the Beltway may turn out to be short lived.
This is because sentiment has been building inside Chinese policy circles, in the other emerging economies and developing countries more broadly, that the G20’s MAP campaign and the IMF’s analyses and recommendations are serving to justify a rising tide of protectionism inside advanced economies — especially the United States.
Policy strategists in China and the other emerging economies have started to register that the G20 MAP agenda and the Fund’s policy recommendations, which emphasize the domestic adjustments that the “emerging surplus economies” must make, are working to constrain the “right to development” of the emerging economies, and South-South trade and development more broadly.
Ironically, the European debt crisis creates an opening for surplus economies to increase their contributions to the IMF, and to gain leverage in global summitry to gradually reorient the core agenda of the G20. Or, potentially, to reshape the research program of the IMF and, by extension, its global policy recommendations.
So far, the increased contributions of China and the BRICS have been more promise than reality. However, this only seems to be a matter of time.
When such financial contributions come, we should not be surprised if they come with requests for changes in the G20’s core agenda, or in the IMF’s work program.
Changes in voting shares would then only be the beginning of more a fundamental reorientation of global economic governance.