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G20: China and the global economic stability
   2016-09-02 15:30:59    CRIENGLISH.com      Web Editor: Liang Tao

By Xu Qinduo

As leaders of the world's largest 20 economies are gathering in Hangzhou to discuss global economic governance, the cloud of weak growth and fragile recovery top their agenda. China, as the hosting country, will be highlighted for its stabilizing role in a time of global economic uncertainty.

China contributes lion's share to global growth

China is the largest trading nation, the third largest source of foreign direct investment, partly due to holding the world's largest foreign reserve of over 3 trillion US dollars. The ups and downs of China's growth naturally leave deep impacts on world's economy.

As China's economy is transforming from relying on heavy investment and export to one that is based on domestic consumption and service industry. China sees the slowdown of economic expansion from previous double digit to the current less than 7% as "new normal."

The new normal has generated some pessimistic views on Chinese economy and its contribution to global economy, as economists would surely like to see a continued sizzling economic expansion of China. But what's noticeable is that even with a growth of 6.7%, China's expansion equals the GDP of Switzerland.

According to a research by Stephen S Roach, the former Chairman of Morgan Stanley,  "Chinese economy remains the single largest contributor to world gross domestic product growth."

Mr. Roach says, if Chinese GDP growth reaches official target of 6.7% in 2016, which is only slightly above the International Monetary Fund's latest prediction of 6.6%, China would account for 1.2 percentage points of world GDP growth. Given the prediction of global growth of only 3.1%, China would contribute nearly 39% of the total.

In comparison, the US contribution to global growth is only about 10%, or a quarter of that of China.

China critical to stability

Speaking on the B20 (Business 20) meetings in Hangzhou, China's deputy finance minister Zhu Guangyao employed a modest tone to introduce the Chinese economy, saying that "we set up a small goal, which is to manage well the economy of China". He added, if we can do a good job on Chinese economic growth, that'll be China's contribution to global growth.

What Zhu didn't mention is China's changing growth model. The contribution from consumption and services industry has accounted for more than half of its GDP growth last year.

And for the first half of this year, we do see some "ups and downs", but in a way indicative of the smooth transition of the growth model. For example, investment contributed only 2.5 percentage points to GDP growth of 6.7%, down from last year's 2.9 points; exports registered a negative growth of 0.7 points during this time.

Despite of that, the major growth came from consumption, which contributed 4.9 points to GDP growth, an increase from last year's 4.2%.  In total, consumption accounted for 73.4% of China's first-half economic growth. The figure compares to 66.4% of economic growth last year.

The  set of numbers shows China's efforts to rebalance its economy towards consumption appear to be working. If the trend persists, that will bode well. In general, the advantage of a consumption-based growth is regarded as a growth that is stable, healthy and sustainable.

That is particularly significant to global economy, as an expansion of Chinese consumption means more exports to China for the rest of the world. Such a growth under the "new normal" will stabilize the global economy amidst a time of uncertainty with Brexit and the rise of protectionist rhetorics by US  presidential candidates. 

China is almost assuming a dual identity - it is the largest developing country, but the second biggest economy, contributing about 39% to global growth. That serves well the purpose of  Chia hosting the G20 summit on global economic governance, as the group includes not only the developed economies like the US, France, Germany, Japan, Britain, but also developing economies like Brazil, India, Mexico, Argentina, South Africa, Saudi Arabia, Turkey and Indonesia.

To fend off the rise of protectionism which is mostly from developed world, China needs to engage both the US and the European Union; To seek a solution to global economic growth, China is expected to coordinate with big emerging economies to tap the potentials in the developing world. Either way, China is to play a leading role in global economic governance, in addition to its own tremendous contribution to growth.

Xu Qinduo is a Beijing-based senior political analyst who provides commentary and analysis on international issues to both Chinese and foreign media, such as Russia Today, BBC, Sky News Australia, NPR, Global Times, La Presse, ABC, The National, and Channel News Asia in both the English and Chinese languages.

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