No Substantial Achievement for World Economy

The news delivered from Shanghai by world major economies last weekend was as simple as declaring to do their best for stabilizing volatile market. While the declaration actually urged major economies to introduce structural reform or financial mobilization, it was not so easy for them to implement. Group 20 cannot be said as an effective framework to lead a solution on crucial issues.

Communiqué of G20 Finance Ministers and Central Bank Governors Meeting was just true in analyzing the situation of world economy. “The global recovery continues, but it remains uneven and falls short of our ambition for strong, sustainable and balanced growth,” said the communiqué. It raised vulnerabilities surrounding the world, including “volatile capital flows, a large drop of commodity prices, escalated geopolitical tensions, the shock of a potential UK exit from the European Union and a large and increasing number of refugees in some regions.” One who reads newspaper could have realized those problems before G20 declared it.

One topic was that G20 agreed on considering capital regulation, which limited capital flows out of emerging economies. Caused by monetary policy of United States ending zero-interest policy or steep drop of crude oil price, money is escaping from emerging economies. “Given the current development in the global economy, we will better monitor capital flows, including more timely identification of risks, and take stock of and review policy tools and frameworks as appropriate to address challenges arising from large and volatile capital flows, drawing on country experiences,” described the communiqué.

In terms of urging regulation on capital flows, Japan took an initiative with proposal of taking necessary measures. United States or International Monetary Fund followed Japanese leadership. However, the chair country, China, was reluctant in introducing actual policy, worrying inconvenience in capital flows in China. “Capital flows is temporary and unimportant problem,” told Governor of People’s Bank of China, Zhou Xiaochuan in his press conference.

After all, G20 countries were only successful in showing basic attitude of cooperation, leaving actual issues behind. U.S. expected China or Germany to have financial mobilization. While China showed its willingness, Germany was negative on it, raising possibility of bubble economy with huge financial debt. Japan urged China further effort for structural reform, a change from growth led by investment to consumption. G20 cannot determine what they can do.