China’s quickly expanding economy helped inspire the Group of Twenty nations to start holding leadership summits in 2008. Heads of state from the world’s most economically influential countries along with European Union officials met then to brainstorm ideas as markets, jobs and companies worldwide fell under the U.S.-driven Global Financial Crisis. China was still growing in 2008, extending already more than 20 years of industrialization padded by budgetary stimulus to head off spillover from the global crisis. Annual growth in China, the world No. 2 economy, was hitting double digits.
As the G20 leaders meet again this year in China, they are expected to look at the host’s country from a new angle: It might not be working out. Economic growth has slowed since 2011 as manufacturing costs rise. As a result, companies are looking for cheaper countries to make stuff, weakening the traditional economic backbone. Chinese officials hope to stoke new economic engines such as consumer spending and private investment anyway.
The leaders whose countries make up 80% of world trade are still looking for ways to strengthen everyone’s economic growth and head off any new financial crises. Eight years ago China was that answer: a safe zone that invigorated foreign investment and trade despite problems in most Western countries.
The G20 leaders’ summit in September, set for the still thriving Chinese city of Hangzhou, will cast attention on what China can still do for the rest of the world despite its economic struggles, experts forecast. If this outlook hearkens back to a year ago when investors in multiple countries worried that China’s faltering economic growth was hurting world capital market performance, it’s no coincidence. China’s GDP growth fell last year to a quarter-century low of 6.9% and has kept declining into 2016. China’s gains in 2015 still came to 30% of world economic growth, impressive but not encouraging contrasted to China’s previous breakneck speed.
“Within Chinese policy circles, it is widely recognised that the current model is unsustainable, and major structural change to the economy is required,” says Jeffrey Wilson, international political economy senior lecturer with Murdoch University in Australia. “Growth rates have precipitously collapsed, massive surplus capacity exists in the heavy industrial sector, non-performing loans are threatening to bankrupt many provincial state owned firms and domestic financial markets are dangerously volatile without repeated interventions from state regulators.”
The G20 leaders, who hail from countries such as Japan, Russia and the United States as well as China, don’t meet to target any one member. But they can consider resolutions that nudge China toward some kind of action.
G20 leaders may do that by issuing a statement on what countries should do individually to foster growth, says Scott Kennedy, director with the Project on Chinese Business & Political Economy under American think tank Center for Strategic & International Studies. The group has previously asked countries to use fiscal stimulus, monetary easing and structural reforms, the backbone of sweeping rescues such as Japan’s 3-year-old “Abenomics” scheme.
China as a G20 member won’t let itself be singled out anyhow. The group may just sharpen what its finance ministers committed to in July: explore policy options “tailored to country circumstances,” avoid protectionism and shun “competitive devaluations” of currencies. China’s tailoring would stand apart from the other 19 group members given its scale and economic model. Beijing also noticeably devalued its yuan currency last year. Protectionism isn’t uniquely Chinese but hardly a stranger to China.
“It may be that incrementalism is all we should expect and that the real pressure shouldn’t be on the G20, but on its largest countries to take unilateral steps to address their own internal domestic economic, political, and social challenges,” Kennedy says.