The second G20 Finance Ministers and Central Bank Governors Meeting under the Chinese Presidency was held in Washington D.C. on April 14-15, 2016. The meeting was co-chaired by Mr. Lou Jiwei, Finance Minister of China and Mr. Zhou Xiaochuan, Governor of the People's Bank of China. Ministers and Governors discussed issues concerning global economy, framework for strong, sustainable and balanced growth, international financial architecture, investment and infrastructure, financial sector reform, international tax, anti-terrorist financing, green finance and climate finance. A communiqué was released after the meeting.
At the meeting, Ministers and Governors agreed that the global recovery continues and the financial markets have recovered most of the ground lost earlier in the year. However, growth remains modest and uneven, and downside risks and uncertainties to the global outlook persist. Ministers and Governors welcomed policy actions being taken by a number of G20 members to support growth and stabilize markets, and reiterate their commitment to using all policy tools – monetary, fiscal and structural – individually and collectively to foster confidence and strengthen growth. Ministers and governors affirmed commitment that monetary policy will continue to support economic activity and ensure price stability, and fiscal policy will be used flexibly to strengthen growth, job creation and confidence, while enhancing resilience and ensuring debt as a share of GDP is on a sustainable path. Ministers and Governors committed to continuing to explore policy options, tailored to country circumstances, that G20 countries may undertake as necessary to support growth and respond to potential risks. Ministers and Governors reaffirmed that they will consultg closely on exchange markets, refrain from competitive devaluations, not target exchange rates for competitive purposes, and resist all forms of protectionism. Ministers and Governors committed to carefully calibrating and clearly communicating macroeconomic and structural policy actions to reduce policy uncertainty, minimize negative spillovers and promote transparency. Ministers and Governors agreed to the priority areas of structural reforms, based on which they will further develop a set of guiding principles that will be applied in a flexible way to allow members to account for their specific national circumstances. Ministers and Governors looked forward to proposals for a set of indicators to help monitor and assess the efforts and progress with structural reforms for endorsement at their July meeting. Ministers and Governors remained committed to the effective and timely implementation of the growth strategies, and would explore further steps to revitalize global trade, lift quality investment and boost innovation as engines for growth, and remained committed to promoting greater inclusiveness and reducing excessive global imbalances.
Ministers and Governors reaffirmed their commitment to advancing the investment agenda with focus on infrastructure, both in terms of quantity and quality. They encouraged MDBs to carry out the action plan to optimize their balance sheets as well as take joint actions to formulate quantitative ambition, and looked forward to further work on launching the Global Infrastructure Connectivity Alliance to enhance the synergy and cooperation of infrastructure programs, and developing a policy guidance note to promote diversified financing instruments. Ministers and Governors welcomed and supported the effective implementation of the G20/OECD Corporate Governance and SME Financing Principles as well as the G20 Action Plan on SME Financing as guidance. Ministers and Governors committed to taking actions to continue strengthening the stability and resilience of the international monetary system, and supported the work to further strengthen the global financial safety net with the IMF at its center, including through more effective cooperation between the IMF and regional financing arrangements. Ministers and Governors looked forward to the completion of the 15th General Review of Quotas, including a new quota formula, by the 2017 Annual Meetings. Ministers and Governors looked forward to the outcomes of the World Bank Group's shareholding review in accordance with the agreed roadmap and timeframe. To facilitate more orderly, timely and predictable sovereign debt restructuring processes, Ministers and Governors committed to fostering greater dialogue among official creditors and debtors and to promoting the incorporation of enhanced contractual clauses into sovereign bonds. Ministers and Governors were supportive of continuing enhance the monitoring and analysis of capital flows and risks stemming from capital flow volatility, and examining possible broader use of SDR.
Ministers and Governors reiterated their support for the timely, full and consistent implementation of the agreed financial sector reform agenda, and taking stock of international experiences with macro-prudential frameworks and tools to help promote effective macro-prudential policies. Ministers and Governors reaffirmed their commitment to timely and widespread implementation of the G20/OECD BEPS package, and called on all relevant countries including all financial centers and jurisdictions, which have not committed to implementing the standard on automatic exchange of information by 2017 or 2018 to do so without delay and to sign the Multilateral Convention. Ministers and Governors reaffirmed their resolve to combat decisively and tackle all sources, techniques and channels of terrorist financing. Ministers and Governors welcomed the progress made by the G20 Green Finance Study Group in identifying challenges to mobilize private capital for green investment. Ministers and Governors stressed the importance of the operating entities of the financial mechanism of the United Nations Framework Convention on Climate Change, welcomed the endorsement of the Strategic Plan for the Green Climate Fund and called for the Fund's continued efforts to scale up its operations. Ministers and Governors reaffirmed their commitment to rationalizing and phasing-out inefficient fossil fuel subsidies that encourage wasteful consumption over the medium term.
Minister Lou Jiwei introduced that the fundamentals of the global economy have changed little, and global recovery remains slow and uneven. Many G20 members have actively taken policy measures in order to boost market confidence and promote growth. Given the combined effect of numerous policy instruments adopted by G20 members, market confidence returned, global financial markets stabilized, investors' risk appetite increased, and capital flowed back to emerging economies. It is worth noting that future monetary policy developments in major advanced economies are still going to have lasting impact on international financial markets and emerging economies. The global economy still faces risks and challenges against the backdrop of persistently low commodity prices, low inflation, terrorism, refugee flows, geopolitical tensions, and a potential UK exit from the European Union. Recently the IMF has once again lowered its forecast for global growth in 2016. At this critical juncture, a three-pronged approach including fiscal policy, monetary policy, and structural reforms should be taken by implementing appropriate monetary policy to prevent the economy from falling off a cliff, expanding fiscal policy, supporting structural reforms, and ultimately achieving strong, sustainable and balanced growth through structural reforms.
Minister Lou Jiwei stated that in 2016 China will continue to implement proactive fiscal policy and step up efforts in this regard. This includes expanding deficit, cutting taxes and fees further, as well as reducing overcapacity and inventory, with a focus on supporting sectors in difficulty such as steel and coal industries, and providing training and resettlement assistance for laid-off workers. The work is mostly carried out by local governments. Fiscal incentives will be given by the central government based on efforts and fiscal conditions at the local level. Meanwhile, China continues to push forward structural reforms, putting deregulation on top of the agenda. Encouraging free mobility of population and labor force is another priority. With this in mind, in order to encourage farmers to work in cities, the government budget at the central level has taken into account the linkage between funding resources available for compulsory education and the rural-urban migration.
Minister Lou Jiwei pointed out that the priority areas and guiding principles for G20 structural reforms as well as the indicator system to assess progress with reforms constitute an important outcome of the G20 Finance Track this year. Members are supportive of the two pillars, and have agreed on the priorities areas, identified key directions of structural reforms and agreed to use a set of quantitative indicators to assess efforts and progress with structural reforms. This demonstrates the G20's resolve to work together to promote structural reforms. China hopes that members could continue to consult on technical issues and achieve consensus as soon as possible.
Governor Zhou Xiaochuan introduced that the Chinese economy has a good start this year, with major economic indicators showing signs of improvement. Chinese economy remains a major contributor to global growth. As China enters a period of "new normal" with a medium-to-high growth rate, the structure and quality of economic growth keeps on improving, new drivers of growth are emerging, and favorable economic fundamentals remain unchanged. China will adopt a prudent monetary policy in a flexible and proper manner to keep liquidity at a reasonable and adequate level. Recent movements in RMB exchange rate reflected relatively well the exchange rate regime based on market supply and demand and with reference to currency baskets. The yuan remained basically stable against baskets. In the meantime, China will vigorously advance supply-side structural reform to strengthen the momentum for sustainable growth. Recent policy measures on reducing overcapacity, destocking and deleveraging will also help drive forward the transformation of economic growth pattern and ensure stead, sound, and sustainable growth.
Governor Zhou Xiaochuan noted that the work of the International Financial Architecture (IFA) Working Group is proceeding in all five main areas: the IMF's quota and governance reform, capital flow, the global safety net, sovereign debt restructuring and debt sustainability, and an enhanced role for the SDR. The High-Level Seminar on IFA recently held in Paris further promoted frank and open-minded discussions. The G20 should take concrete measures to enhance the stability and resilience of the international monetary system. The IMF's 15th quota review needs to be completed in time by the 2017 Annual Meetings, with a further increase in the overall quota share of emerging market and developing countries. Capital flow and related risks should be better monitored, stocktaking of country experiences could help countries to better tackle challenges related to capital flows. Continuous efforts need to be made in sovereign debt issues, the Paris Club's efforts to engage emerging official creditors were welcome. It is important to strengthen the global financial safety net, with IMF at its center, including through more effective cooperation between the IMF and regional financing arrangements, and the lending toolkit of the IMF needs to be improved. The use of the SDR could be broadened, such as reporting financial and economic data in SDR in parallel with the U.S. dollar, including foreign exchange reserves, and issuing SDR-dominated bonds.
Governor Zhou Xiaochuan stressed that the G20 should continue to promote global financial sector reform agenda, and remain committed to full, consistent and timely implementation of agreed reforms. Efforts need to be made to continuously improve regulatory framework to address emerging risks and vulnerabilities. The G20 should take stock of experiences and lessons with macro-prudential frameworks and tools, and remain alert to potential risks of market-based finance and discuss regulatory measures. Supervision on financial market infrastructures needs to be enhanced. The G20 should also continue to promote financial inclusion with focus on digital financial inclusion as well as financial inclusion indicators and data collection.
Governor Zhou Xiaochuan updated on the progresses made by the G20 Green Finance Study Group since its establishment. The study group is working to develop country-specific options and initiatives to mobilize more resources for green finance, including financial innovations, knowledge sharing and capacity building, risk analysis, and international cooperation.
According to the Work Plan of G20 Finance Track in 2016, the third G20 Finance Ministers and Central Bank Governors Meeting will be held in Chengdu on July 23-24.