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My views on global economic governance
By Professor XU, Hongcai; Deputy Director of Information Department of CCIEE;
Presentation for the United Nations Theme Group on China in the World
At UNDP China, on December 18, 2012
Good morning, ladies and gentlemen:
It’s my honor to attend today’s conference and share my views with all of you. Before I start my presentation, I’d likely to give a brief introduction of myself. I am working in China Center for International Economic Exchanges (CCIEE), which was established in 2009 and has developed as one of the most comprehensive and influential think tanks in China. Yesterday, CCIEE and UNDP jointly hosted High-Level Policy Forum on Global Governance. So many participants presented so much valuable opinion about global governance. However, it is not easy for me to summarize these informations. So, I would like to introduce my views on global economic governance and elaborate this topic through three parts.
Part one: China’s entry into WTO: a successful example of China’s integration into globalization
China's entry into WTO in 2001 and its consistent efforts in integrating into global economy have proved to be successful and exerted profound impact on China’s economy. One of the important progress is the establishment of a primarily market driven economy, which is in line with international practice. Over the past eleven years, China has updated more than 2,300 domestic laws, regulations and departmental rules to meet requirements of WTO rules. It also reduced overall import tariff to less than 10% by 2011 from 15% previously. I believe that China’s integration into global economy has significantly improved our economic productivity and competitiveness. Also, China has made much greater contribution to world economy.
Firstly, China has improved its economic competitiveness and impact. In 2001, China was the sixth-largest exporter in the world, with its exports and imports accounting for only 4.3% of the world trade. Today, its international trade has reached 10.4% of total world trade, as such, exports had been one of major economic growth drivers over the past 10 years. Its total international trade surged to $3.64 trillion in 2011 from $509.7 billion in 2001, with exports soaring by 6.13 times and imports up by 6.16 times. In 2009, China became the world's largest exporter and the second-largest importer amid downturn of global financial crisis.
Secondly, sustained FDI and capital inflows have also contributed to China’s economy. As of 2011, total FDI in China has reached $116.01 billion and there are a total of more than 730,000 foreign enterprises currently operating in China. During 2002-2011, FDI realized strong compounded annual growth rate at 44.6%. Currently, the number of foreign enterprises accounts for only 3% of the total enterprises in China, but accounts for around 30% of China’s total industrial production and contributes 53% of China’s imports and exports.
Thirdly, China has started its capital exports as well, which should in turn contribute to world economic growth. In 2011, China’s net oversea direct investment (ODI) reached $424.78 billion, ranking 13th in the world. More than 13,500 Chinese domestic investors have set up 18,000 oversea enterprises in 177 countries (regions). In 2011, China’s non-financial ODI reached $68.6 billion, representing 14% year on year increase. Sales revenue of China’s overseas enterprise reached $1 trillion in 2011. These enterprises paid more than $22 billion of taxes to oversea countries, and provided 1.22 million employments.
Fourthly, China has improved its industrial structure over the past 10 years. The R&D institutions set up by multinational corporations have helped Chinese companies to obtain advanced technology and further improved these sectors’ productivity. Due to different situation of economic development in China’s eastern, central and western regions, we have seen that the FDI and capital inflows are gradually migrating to central and western regions in recent years, driven by industrial transferring policies of local government. We have also observed that more and more technology intensive international companies are establishing their R&D and production base in China. Over the next 10 years, I believe that the service industry and the high-tech industry FDI will continue to achieve strong growth in China along with its economy transformation and industry upgrade.
Lastly and most importantly, China has built its market-driven economic governance in line with international practice, and further opened its financial industry. In general, China has restructured its economy by promoting private investment and achieved significant progress in SOEs’ reform. We have also established a diversified and highly efficient financial system and markets. Now, we have realized an exchangeable RMB under trade account, and established a manageable exchange rate system. China will steadily open its capital account and make the RMB exchangeable under capital account. Obviously, RMB internationalization is one of key agenda for China over the next 5-10 years. To achieve this mission, we welcome Hong Kong and London to play important roles by establishing regional RMB off-shore financial markets.
China has benefited from its entry into WTO and has become an important engine of the world economy. For example, in 2011, China’s imports from the US, the EU and Japan reached $122.2 billion, $211.2 billion, and $194.6 billion respectively. In 2008, China became the largest export destination for the least developed countries. Also, it has contributed significantly to emerging economies. In the past eleven years, China's accumulative contribution to the world's GDP growth has exceeded 20 percent, and its imports arrived at nearly $1 trillion on average annually, which created more than 15 million jobs for its trading partners.
Briefly speaking, China’s entry into the WTO accelerated its pace towards an open economy, which in turn contributed a lot to the global economic prosperity. This has been proven to be a win-win example for itself and the world.
Part two: the global economic governance is facing serious challenges
Firstly, the current multilateral trading system does not fit today’s world economic structure and reality. The GATT and the WTO have been dominated by several developed countries. The universal consensus required in decision-making is difficult to achieve, which has dragged down the Uruguay Round negotiation process. Under WTO framework, the time needed for dispute resolution is quite long. Insufficient trade information transparency also forms obstacle to developing members to further increase their exports to developed markets. Therefore, international community expects further reforms will be made on the WTO’s mechanism to improve its transparency and efficiency.
Secondly, growing investment protectionism in developed markets is threatening world trade and global economic growth. Massive hot money flows have posted serious problems to the stability of global financial system. Therefore, some developing countries have introduced capital control measures and monitored the FDI more carefully. Meanwhile, the mechanisms for international investment governance are facing increasingly complicated situation. As of 2011, there was a total of 3,164 international investment agreement (IIA) globally, including 2,833 bilateral investment agreement (BIT) and 331 free trade agreements (FTA) and economic partnership agreements, regional agreements and other forms of international investment agreements, some of which are overlapping and hence reduced investment efficiency. In addition, corporate social responsibility does not have unified standard cross countries.
Thirdly, the dominance of international monetary system by the US dollar continues to create instability to world economy. It has come to light that a single currency acting as the dominating global reserve currency does not suit the reality of today’s world economy. With sharply fluctuating exchange rates, it is difficult to monitor international capital flows, identify financial risks in advance, and stabilize the global monetary system once a crisis happens. If current international monetary system cannot be successfully reformed, a new financial crisis is likely to return shortly. In my view, the G20’s progress in reforming the international monetary system has not been satisfactory.
Part three: my suggestions
Firstly, improve effectiveness of the multilateral trading system. We need to strictly execute the agreements reached through negotiations to ensure effective implementation of WTO’s dispute settlement. Meanwhile, the WTO members should start a new round of multilateral negotiations as early as possible, continuously exploring new solutions to solve numerous problems in global economy. The WTO should also pay more attention to developing countries, so as to achieve better balance between the interests of developed countries and developing economies. In addition, the WTO should enhance cooperation with other international institutions.
Secondly, the WTO should strengthen cooperation with regional trade agreements. In recent years, trade conflicts have negatively impacted global economy. Experience shows that enhancing regional cooperation could reduce trade conflicts and associated risks leading to financial crisis. Therefore, it is necessary to further improve the review standard of regional trade agreements and increase its efficiency. Also, it is critical to reform the governance of international investment by integrating investment review policy and corporate social responsibility.
Thirdly, we reiterate our stance on reforming the IMF and deepening the G20-IMF Linkage. The G20 should set up a permanent secretariat within the IMF to improve its policy-making capability and implementation performance. The G20 should discuss and form an executable reform agenda for international monetary system. This agenda should include members’ consensus on guiding the ideology, basic principles, reform objectives, a concrete action plan, and respective responsibilities of each nation. The ultimate goal of such reform is to gradually change the current “single currency” monetary system centered at the U.S. dollar to a diversified international monetary system, which is consisted of multiple major currencies, such as the SDR, the U.S. dollar, the Euro, the Pound, the Yen, and the RMB.
To achieve above objective, we should establish four sub-systems. The first is to build an international supervision system for reserve currencies, with the IMF acting as key supervisor to monitor international reserve currency move. The second is to establish a system for international reserve currencies to compete in an open market. The third is to improve international financial crisis bailout mechanism. The fourth is to improve collaboration and human resource allocation between the BIS and the IMF.
Lastly, we should encourage think tanks’ participation in improving global economic governance. The G20 should build a network of think tanks from different member states under coordination of the IMF, as they are able to undertake unique and more important tasks towards improving global economic governance. G20 members could encourage their leading think tanks to initiate and participate in cross country’s academic communications and research projects. In the case of China, the CCIEE is able to play a greater role in these actions given that our institution has established wide connection with China’s policy makers and profound impact on China’s economy. I believe that such cooperation will help us to contribute more to the common interest of international community.
Thank you for your attention. |
