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Beijing Review Exclusive
Special> Global Financial Crisis> Beijing Review Exclusive
UPDATED: April 10, 2009 NO. 15 APR. 16, 2009
A Message of Confidence
The G20 summit breathes fresh life into the weakening health of the world economy

Yet, with massive job losses and deep recessions looming large, the G20 leaders seemed to have set aside their differences and sought to find common ground. While exhibiting an impressive degree of unity, they sent out a strong message that the world's power of revival really lies in their own hands.

In addition to the announced measures, the G20 also in the communiqué pledged to ensure greater international economic coordination and achieve greater consistency and systematic cooperation between countries in a number of fields.

In a meeting with British Prime Minister Gordon Brown, Chinese President Hu Jintao compared the current world economy to "a big engulfed boat in which all countries onboard face the common challenge of downturns."

"Only by joining the forces of all countries can the boat sail through the storm to safe shores," Hu said.

Hope in sight

One bright spot at the summit was that the IMF gained clout in global economic affairs. After receiving an additional $500-billion contribution from the G20 countries, the international financial organization now has a greater capacity to loan money to needy countries that are lining up for help. More importantly, it will step into a critical role in shaping the reconfiguration of the currently disabled global financial system. Together with a new Financial Stability Board, the IMF will impose heavy-handed regulations on banks' capital requirements, credit rating agencies, large hedge funds and executive pay to guard against risks to the global financial system.

The trade issue was also brought front and center at the summit because of its weighty importance for the world economy. Global trade is sinking at a daunting pace. More disturbing, though, is the fact that the insidious protectionism trend is rearing its ugly head, eroding what should have been a driving force of growth. A rising number of countries are tempted to erect trade barriers, such as import bans or antidumping duties.

While declaring a war on the protectionism trend, the G20 countries reaffirmed their commitment to avoiding a further retreat into trade restrictions, swiftly removing those barriers already put in place, and accelerating the Doha round of trade talks. Besides this, they also agreed to a package worth $250 billion over the next two years to support trade financing that is drying up as a result of the credit crunch.

Chinese economists cautiously welcomed the concerted measures, saying they were an anticipated boon to stem the proliferation of the recessionary fears in the developing world. Those concerted efforts will help soften the depth and shorten the duration of the recession, but it is much too early to predict a recovery of the global economy given an overhang of uncertainties, said Guo Tianyong, a banking professor at the Central University of Finance and Economics.

"The world economy has to go a long way toward substantial revitalization, but it indeed has a good beginning," Guo said.

Zhao Xijun, Deputy Dean of the School of Finance at the Renmin University of China, also echoed Guo's opinion.

"The summit prescribed a much-needed remedy for the world economy that is teetering on the abyss." said Zhao in a statement. "Never before have policymakers from around the world taken such concerted stimulus actions since the crisis broke out."

Yet, the summit was not without flaws. Details of the $5-trillion fiscal stimulus package remain unclear, raising worries over its feasibility. Meanwhile, complaints are growing in the developed world that the summit fell short of producing a concrete plan for cleaning up the toxic assets in the Western financial system that threaten to further bear down the economy. The IMF will shoulder the responsibility of global financial regulations, but it may be difficult for the fund to exert influence on member countries that do not need its money.

Moreover, the anti-protectionism commitment also runs the risk of becoming just lip service because of a lack of concrete regulatory measures. At the Washington Summit last November, the G20 countries also vowed to combat protectionism, but 17 of them reneged on the promise by taking trade-restricting steps at the expense of other countries, said the World Bank in a recent report.

Analysts believe it is imperative now for the G20 countries to hammer out detailed revitalization plans and seriously honor their pledges in case the economic downturns become worse.

"Only by turning the words into action can the economies forestall further deterioration," said Zhao Xijun.

China's role

China has stood steadily behind the world's concerted economic revitalization drive as it joined the IMF's revamp and appealed to a halt to trade protectionism.

Like many other countries, China is expected to gain momentum from those measures as its dependence on exports and an ambition to become a global business player have made it vulnerable to protectionism. The financial reforms also would put the country in a better position to fend off market risks.

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