China Daily Exclusive

China's economy 'cannot drive global growth'

By Li Xing and Ding Qingfen (China Daily)
Updated: 2010-06-26 14:57

As the G20 Toronto Summit nears, there still exist many uncertainties about the global economy, ranging from the struggle of the euro zone and high unemployment rate of the United States to high fiscal deficit with Japan and China's over-reliance on exports.

Rachel Ziemba, a senior economist on China issues at the London-based Roubini Global Economics, discusses the previous G20 summits, the global economy, his prediction of the Canada summit, and China's role in assisting the G20 to reap fruitful results.

Q: How do you assess the effectiveness, achievements and failings of G20 Summits since the financial crisis?

A: The G20 is effective and brings countries together to coordinate. Some early G20 meetings focused on providing liquidity and stabilizing the IMF (International Monetary Fund) and other development banks. Since then, the global economy has started stabilizing.

Particularly right now, there are many countries starting to withdraw fiscal stimulus, which will have a negative effect on reducing global aggregate demand. So they are dealing with the challenges of extensive debt amassed before the financial crisis and exacerbated by the crisis. This will make it even harder for G20 to bring the countries together.

The other concern that I have is, not only are there many members at the G20 table, there are many themes. The agenda that the G20 has is very crowded. They are dealing with not only financial issues but also the energy policy and fuel subsidies.

And it's very difficult to deal with all theses issues in a two-day meeting.

Q: What is your expectation from the G20 Toronto Summit?

A: There is still a significant amount of divisions going into the summit, not as much as there was two months ago. I believe the focus will be on the stabilization of the euro zone, a model that could be operated under the G20 of course, and at the EU (European Union) and the IMF package.

I think, behind the scenes, there will be a lot of requests for information on how that is going to work, and more requests for clarity on how the EU would deal with countries like Spain.

I think another issue that would be in focus is financial regulatory reforms. There might be a lot of discussions on fiscal consolidation as some European countries have started to cut down on fiscal spending.

Q: Could we talk further about reforms of international financial institutions, the role they have played in the change in reforms? A lot of people think the change is too slow and very minimal?

A: Actually, China, Brazil and others are pointing to changing and implementing symbolic shares in the IMF, the change in weight in the voting shares. It was a long time ago, but now they are looking at China and other emerging economies in order to get a larger voting share. Someone will have to cede the share, as Europe has been reluctant to do so. And now that the IMF is involved in providing capital to the EU, they will be even less likely to do that. I think this is a key issue on the Chinese priority list at the G20.

The IMF has reinvented itself in the last two years. It had almost no customers, and was forced to create new financing plans to bring in more capital. Now the IMF plays a key role in providing channels to many constructive economies during the financial crisis.

Q: What other roles do you expect China to play in the G20?

A: One of the things to watch is its role in the new macro-economic peer review that was brought in the place at the Pittsburgh G20. Now, it's one of the challenges of 2010, unlike 2009, when the global economy was dropping sharply. Now you have a situation where economic output is recovering at a different speed. Last year, there was pressure to coordinate, but now the policies will vary across countries.

Last year, the Chinese argument was that China's growth is synonymous with global growth. But it may not be true at this point. China's economy is not big enough to drive global growth. It can be a positive contributor, it can help support growth in Asia and in the commodity market. But the final Chinese domestic demand is insufficient to offset the slower demand in the EU and the US.