G20 takes up global inequality challenge
We’ll send you a myFT Daily Digest email rounding up the latest UK business & economy news every morning.
Even before the final communiqué is drafted for the annual G20 summit the leaders of the world’s largest economies already seemed to agree on their most pressing priority: to find a way to sell the benefits of globalisation to an increasingly sceptical public.
As they arrived in the Chinese city of Hangzhou over the weekend, many were on the defensive amid a welter of familiar complaints back home: frustratingly slow growth, rising social inequality and the scourge of corporate tax avoidance.
“Many of our citizens are frustrated by the pace of globalisation and feel they are not experiencing the benefits of international trade,” Theresa May, the British prime minister, said at a briefing just ahead of the summit’s formal opening in Hangzhou in eastern China. “This is an issue we can’t afford to ignore.”
Mrs May was echoed by President Barack Obama of the US and his Chinese counterpart, Xi Jinping, even as the leaders of the world’s two largest economies set a positive example for global co-operation with their joint ratification of the Paris accord on climate change.
“Growth drivers from the previous round of technological progress are fading while a new technological and industrial revolution has yet to gain momentum,” Mr Xi said at the start of the G20, adding that the global economy was at a “critical juncture”.
“Here at the G20 we will continue to pursue an agenda of inclusive and sustainable growth,” Mr Obama said, acknowledging that “the international order is under strain”.
Mr Xi, whose country has arguably benefited more than any other from globalisation, struck a similarly cautious note in a weekend speech to business leaders. In China, he said, “we will make the pie bigger and make sure people get a fairer share of it”.
He also recognised global inequity, noting that the global gini coefficient — the standard measure of inequality — had raced past what he called its “alarm level” of 0.6 and now stood at 0.7. “We need to build a more inclusive world economy,” Mr Xi said.
Globalisation is increasingly seen as a zero-sum game, with figures such as Republican presidential nominee Donald Trump arguing that China’s rise has come at the expense of US manufacturing heartlands.
The rise of Mr Trump — and fellow populists across the west — Britain’s surprise vote to leave the EU and the hardening opposition to trade agreements have all been taken as signs of rising disenchantment with the global economic order.
In another setback last week, France publicly called for Brussels to end talks on a trade deal with the US touted as a linchpin of transatlantic prosperity and co-operation.
At the G20, French president François Hollande pitched himself as the leader to address globalisation’s shortcomings, saying in a Facebook post: “Our country refuses a globalisation without rules, where social models are pit against each other and dragged downward, where inequalities grow.”
The global economy is expected to grow at just 3.1 per cent this year, according to the International Monetary Fund’s current forecasts, as trade and investment flag.
“We’ve thrown a number of things at [slowing growth] over the years,” said Angel Gurría, secretary-general of the Organisation of Economic Co-operation and Development. “[Traditional] cylinders of growth are chugging their way but they are moving half-speed at best.”
“In some cases we look like we’re walking backwards,” Mr Gurria added. “Trade should be growing at 6-7 per cent and it’s growing at 3.”
One traditional engine, the Chinese economy, is growing at its slowest rate in a quarter century while Brazil and Russia are both in their second year of recession. Speaking at the weekend, Chinese president Xi Jinping rejected criticism that his government had shied away from “bold” reform initiatives but emphasised that Beijing’s goal was now to ensure growth was “quality-based rather than quantity-based”.
As host of this year’s G20 meetings, Mr Xi is eager to maintain a united front at the two-day summit.
But cracks were beginning to show even before the summit’s opening ceremony, with European Commission president Jean-Claude Juncker challenging Mr Xi’s government to “show the responsibility that comes with greater economic power”.
EU and US politicians have been especially critical of overcapacity in China’s steel sector, which they blame for a surge in cheap exports. “The summit must urgently find solutions to the problems facing the global steel industry,” Mr Juncker said. “I am determined to defend the interests of the EU steel industry . . . This is a global problem with a specific Chinese dimension.”
Speaking to CNN, Mr Obama also took aim at Beijing. “You can’t just export problems,” he warned China. “You’ve got to have fair trade and not just free trade.”
In their face-to-face meeting, Mr Obama raised Beijing’s human rights record and urged Mr Xi to abide by an international tribunal ruling that said there was no legal basis for Beijing’s territorial claims in the South China Sea. Mr Xi has refused to acknowledge the ruling and warned Mr Obama against “interfering in [China’s] internal affairs in the name of human rights”.
There was also tension between the US and EU over Brussels’ ruling last week that a decades-old tax agreement between Ireland and Apple violated the bloc’s ban on “state aid” for companies. Apple and US officials have suggested that the ruling by EU competition commissioner Margrethe Vestager unfairly targeted American companies
But Mr Juncker defended the decision, arguing that such schemes had further undermined popular perceptions of globalisation. “Tax authorities cannot give benefits to some companies and not to others,” he said.
Get alerts on UK business & economy when a new story is published