Anxiety in the Air, World Leaders Converge on China

In September 4 to 5, heads of the world’s major economies will meet in the southeastern Chinese city of Hangzhou (pictured above) for the G20 summit. The meeting represents “the most significant gathering of world leaders in China’s history,” according to The New York Times. Beijing’s growing international legitimacy belies domestic unease about Chinese Communist Party rule and international concern about Chinese power. We asked veteran China watchers what we can expect from discussions at the summit, beginning with looks at China’s record on human rights, the environment, and Beijing’s relationship with Moscow. —The ChinaFile Editors

John Delury, Professor, Yonsei University:

I remember vividly my first trip to Hangzhou some 20 years ago, on my maiden visit to China. It was a sleepy city, suffused in the quiet splendor of a rich imperial past. Walking the West Lake causeway one night, a bat swooped low and bounced off the top of my sister’s head. I reassured her, based on what little I knew of Chinese culture, that bats were symbols of good fortune, and she should count herself lucky. There was no Zhang Yimou lightshow, though he was that year becoming known to moviegoers worldwide thanks to his electrifying epic To Live. There was no Alibaba Headquarters, though it was the year that Jack Ma heard about the Internet. There were no Ferrari dealerships or Gucci stores or Starbucks — to feed a caffeine addiction, one had to drink the green tea that grew in abundance in the surrounding hills.

The Hangzhou on display for the G20 glistens and gleams with the sparkle of a wealthy and powerful China. With my fond memories of a shabbier city where a budding student of Chinese history could wander ruins of the past quietly, I am happy to watch the summitry from afar. Here in Seoul, the mood toward China is anxious, and Korean president Park Geun-hye’s every move will be scrutinized. Park carefully built up a remarkably close relationship with Xi Jinping, immortalized by standing beside him last September on the Tiananmen rostrum during China’s military parade celebrating victory over Japan in 1945.

But that moment turned out to be the apogee of Xi-Park intimacy, as the dictates of their perceived foreign policy interests sent them drifting down different currents, and then North Korea’s nuclear and missile tests early this year capsized the close ties between Seoul and Beijing. President Park reacted to North Korea’s muscle flexing by terminating her inter-Korean policy of talking to Pyongyang despite tensions. Meanwhile, frustrated with Beijing’s unresponsiveness — the word in Seoul was Xi refused to pick up the phone when Park called — she gave the green light to deployment in Korea of a U.S. missile defense system known as THAAD (Terminal High-Altitude Area Defense). Seoul had been adamant that a fourth nuclear test by Pyongyang would be a “game changer” and would elicit a dramatic counter-response; Beijing had been insisting that THAAD deployment by Seoul would change the strategic balance of power in the region and would be vehemently opposed by China. Suddenly, both red lines had been crossed. Park’s China strategy — of forging close ties to Xi without ruffling Washington’s feathers — and her North Korea strategy — of trying to build “trust” with North Korean dictator Kim Jong-un and keeping lines of communication open despite ongoing hostility — were now both in tatters.

It is unclear where Seoul goes from here. Not talking to Pyongyang will not stop their advances in nuclear and missile weaponry, as recent weeks have demonstrated. And not getting along with Beijing is not really an option, given economic realities: China is South Korea’s largest trade partner by far, exceeding trade with the United States and Japan combined. If Park has to walk back one of her two major foreign policy reversals, it is almost sure to be the harder edge toward Beijing rather than the hard line toward Pyongyang. But given Beijing’s implacable opposition to South Korea’s missile defense plans, restoring Sino-South Korean friendship to the moment last year in Tiananmen seems like a bridge too far. Like my rosy memories of early 1990s Hangzhou, the solidarity between Xi and Park seems to have slipped into the realm of history, or perhaps its mischievous cousin, nostalgia.

Ho-Fung Hung, Professor, Johns Hopkins University:

The G20 summit was initiated as a response to the global financial crisis starting with the Wall Street meltdown in September 2008. Since the first Washington, D.C. summit in November 2008, China has been looked up to as the lodestar that could lead the world economy out of the crisis. This no longer will be the case at the upcoming Hangzhou summit.

In the midst of the global crisis, China surpassed Japan to become the biggest foreign creditor to the U.S. government in 2008 and became the second largest economy in the world in 2010. China’s economy, though battered by the initial fallout of the financial crisis, rebounded strongly in 2009-2010 amid an orgy of fixed asset investment fueled by profuse state bank lending. Major economies of the world from Australia to Brazil were spared from the global crisis by strengthening ties with China. Many claimed that China’s decision to buy or sell U.S. Treasury bonds would determine whether a forecast collapse of the dollar could be prevented. In those years, Chinese leaders were not shy to lecture American officials on economic governance.

As such, Chinese leaders attending the G20 summit often were confident enough to challenge U.S. leadership in the world economy and suggest bold reform of global economic governance. At the first summit in 2008, then-Chinese President Hu Jintao hinted at China’s discontent with the dollar’s world domination, proposing an increase in the “diversity of the international monetary system.” At the 2011 summit, Hu made the specific proposal about an international reserve system based on the International Monetary Fund’s Special Drawing Right currency basket (IMF SDR), which has “stable value, rule-based issuance, and manageable supply,” implying that the U.S. dollar, as the dominant reserve currency, lacks these qualities. The proposal was in tandem with Beijing’s push for internationalization of the yuan and China’s successful bid for yuan’s inclusion in the SDR basket.

Now, just as the G20 summit finally goes to China for the first time, the Chinese economy is struggling. Many fear a deepening slowdown of China will pose a grave risk on global growth despite the solid recovery of the U.S. economy. The anxiety about a Chinese debt crisis caused by the hangover of the debt-fueled overinvestment underlying the 2009-2010 rebound is in the air. With worsening capital flight and stock market volatility since last year, Beijing has been tightening foreign exchange control and increasing its administrative intervention into the stock market. Many see a reversal of the country’s opening-up policy. Some blame China’s alleged attempt to export its industrial overcapacity for the rise of trade protectionism around the world.

China still has a lot of ambitious plans to offer to the world, such as the Asian Infrastructure Investment Bank (AIIB) and the One-Belt One Road Initiative. But these plans are insufficient to outweigh China’s economic challenges. China has lost its aura. It is likely that in the upcoming summit, President Xi will take a more humble stand and China will be less of the center of attention. It is ironic for the first G20 summit hosted by China.

Philipp Ivanov, CEO, Asia Society Australia:

The G20 could not have come at a better time for both Russia and China.

China’s global standing has been undermined by the Hague Tribunal’s ruling on the South China Sea dispute with the Philippines, the ongoing crackdown on human and labor rights lawyers, and uncertainty about its economic reforms directions and the general pulse of the economy.

Russia — weakened by the economic stagnation caused by Western sanctions, a fall in oil prices, and ineffective economic governance and corruption — finds an outlet for limited engagement with the West in Syria, where it supports the Assad regime and plays what it sees as a peace- and deal-making role. The G20 — with its stated focus on global economy and high-profile membership — provides a unique opportunity for both Russia and China for behind-closed-doors diplomacy on Syria, the South China Sea, and Ukraine — issues seemingly far removed from the economic governance agenda.

It is an opportunity that the global leaders should not miss.

While it is difficult to imagine any breakthrough on Ukraine, the summit may provide a chance for Russia and the United States to find a common ground on Syria, for example on the issue of Turkey’s new campaign in Syria. Both Russia and the United States have some leverage on Turkey, which can be used to minimize any further escalation of the conflict brought by Turkey’s incursions. Russians and Americans can also engage on the potential areas of coordination (rather than cooperation) in maximizing military pressure on ISIS.

China and the United States may seek to restate their respective positions on the South China Sea dispute, but also brainstorm potential regional dialogue mechanisms and confidence-building measures, which can further inform the agenda of the upcoming ASEAN Summit in Laos on September 6-8.

Finally, the G20 gives Russia and China a platform to publicly reaffirm their strategic partnership in the face of deteriorating relations with the United States (and, in Russia’s case, with Europe) and a lack of progress on the bilateral economic front. But we should not expect to see any strong anti-U.S. rhetoric; for China, the G20 will be overwhelmingly about demonstrating its global leadership and growing power.

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