G20 Summit held on September 4 and 5 was about everything but economics. Held as it was in the background of geopolitical incidents and terror, the Hangzhou meet of the world’s largest economies saw discussions and queries about the future of Britain and implications of its exit from the European Union. The underlying tensions over the South China Sea, where one littoral state is claiming its exclusive suzerainty over the entire expanse of the international sea, could not be suppressed. No less poignant was the issue of terror.
This was much to the distaste of China. Before the summit began, China sought to dictate its agenda on G20. In a telegram message to the participating leaders, China had proposed that the Hangzhou meet should discuss an economic revival package and push for greater free trade. Trade has fallen over the years since 2008 global financial melt-down.
It is unfettered free trade that had buoyed up China. Unlimited export markets had given rise to China’s manufacturing industry. It had brought up its manufacturing industry on the basis of the scale of production so that the costs were at rock bottom. Even then, China had used every kind of non-market intervention to promote its interests. It did not have much of minimum wages and its workers were kept in large dormitories to keep down costs. Nor did it have market linked interests rates.
With the meltdown in financial markets, the western countries had slipped into recession and there are protectionist proclivities even in the citadels of free market economies. The USA has imposed non-trade barriers and so did the European Union. None of the advanced countries nowadays bother about the WTO negotiations for opening up trade. Instead, they are working out their own trade blocks.
The United States is promoting its own trade block through the so-called Trans-Pacific Partnership. The USA has strategically kept China out of the world’s largest trading group. Additionally, United States is now pursuing the idea of a trade pact –free trade—with the European Union which also excludes China. Chances of an Asian trade pact is nowhere in the horizon.
China in the situation is seeing its worst fears coming true. Trade is getting cut up in rival trading blocs and it not being part of at least the two dominant ones, could mean the engine of its growth sputtering. It should pursue the objective of promoting international trade and it had sought to use the platform of G20 –now that it was being held in China—for promoting freer trade. But then, there were hardly any serious takers for the trade lobby and hardly any discussion was held about it, let alone concrete action programme for the promotion of global trade at G20.
Just before the summit, China had sought US recognition of the country as a “free market economy”. This did not happen. On the contrary, the US Presidential contestant had floated the idea of declaring China as a currency manipulator.
Many experts had believed that the G20 summit would at least deliberate on the use of fiscal policy for rejuvenating global economy. As such, unconventional monetary policy and unprecedented expansion of the balance sheets of major Central banks through quantitative easing (QE) had failed to revive aggregate demand in the advanced economies and even overall inflation rates in these countries did not show any temperature. If anything, prices proved to be defiantly sluggish and often have fallen in Japan and advanced economies in the last eight years.
The issue is most acute in Japan where the country’s Central bank had continued to undertake massive funds infusion. If you are following classical economics, these should have resulted in run-away inflation and currency depreciation. Only the reverse has happened: yen kept resolutely appreciating and prices refused to rise.
Instead of talking about Japan’s monetary policy actions, Japan if at all came up for discussion at the G20, it was over its letter to the British government about its fears over Brexit. The letter from Japanese Prime Minister cautioned the British government about future investments from Japan in the UK. It wondered what would happen to Japanese companies’ investments in the UK, mainly in automobiles and some other high tech industries that had presumed duty free access to EU market. These investments face an uncertain future.
In fact, the new Prime Minister of Britain, Theresa May, was under pressure from leaders about British decision to exit the EU. Even the country which has a special relationship with the UK, USA refused to show any preference for nurturing that any further. The United States, rather openly stated, that it would pursue a free trade agreement with EU and think of anything with the UK only thereafter.
G20 in China had turned out to be a global platform for pursuing the individual national interests of the summiteers. And why not?
After all, national interest tops over vague global priorities. The Indian Prime Minister was perfectly within his right to speak about terror states. Against the context of what is happening in the Indian state of Kashmir and perpetual export of terrorists from organised training camps of the Pakistani army into India, global recognition of this fact should have been only a reasonable first step. None of that is happening because presumably, India is not one of the chosen few. It is not the USA or a member state of EU. Hence, terror in India is remote whereas something in France is immediate.
In fact, China itself is the principal backer of Pakistan and its open support for terror. When India and USA concluded some agreements for sharing bases or military co-operation, China could not hold its breath to announce long-term contracts for the sale of submarines to Pakistan. In Chinese land, it was then India’s turn to condemn terror states in general. In fact, if anything the Prime Minister should have more critically mentioned Pakistan and its terror tactics. That would have driven the Chinese a little more bitter taste.
(The views expressed are strictly personal.)