The third G20 Finance Ministers and Central Bank Governors Meeting under the Chinese Presidency was held in Chengdu on July 23-24, 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. The meeting was also the last G20 Finance Ministers and Central Bank Governors Meeting before Hangzhou Summit. 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, green finance, climate finance, and anti-terrorist financing, and endorsed the key outcomes under each subject. A communiqué was released after the meeting.
At the meeting, Ministers and Governors agreed that the global economic recovery continues but remains weaker than desirable, and downside risks persist. The outcome of the referendum on the UK's membership of the EU adds to the uncertainty in the global economy. Members of the G20 are well positioned to proactively address the potential economic and financial consequences stemming from the UK referendum, and hope to see the UK as a close partner of the EU in the future. Ministers and Governors pointed out that members of the G20 are taking actions to foster confidence and support growth, and reiterated their determination to use all policy tools – monetary, fiscal and structural – individually and collectively to achieve their goal of strong, sustainable, balanced and inclusive growth. Ministers and Governors affirmed commitment that monetary policy will continue to support economic activity and ensure price stability. Underscoring the essential role of structural reforms, Ministers and Governors emphasized their fiscal strategies are equally important to support their common growth objectives. Ministers and Governors committed to continuing to explore policy options, tailored to country circumstances, that G20 countries may undertake as necessary. Ministers and Governors reaffirmed that they will consult closely on exchange markets, refrain from competitive devaluations, not target exchange rates for competitive purposes, and resist all forms of protectionism.
Ministers and Governors endorsed the Enhanced Structural Reform Agenda, developed a set of guiding principles based on the nine priority areas of structural reforms agreed in April, and agreed upon a set of indicators to help monitor and assess their progress with structural reforms. Ministers and Governors pointed out that the G20 are making further progress towards the implementation of their growth strategies, and their updated growth strategies and an accountability report will be finalized before the Hangzhou Summit. Ministers and Governors committed to making further efforts to revitalize global trade and lift investment, striving to reduce excessive imbalances, and promoting greater inclusiveness in the G20's pursuit of economic growth.
Ministers and Governors welcomed the commitments made in the "Joint Declaration of Aspirations on Actions to Support Infrastructure Investment" by 11 MDBs which includes their announcements of quantitative ambitions commitments, launched the Global Infrastructure Connectivity Alliance and endorsed the G20/OECD Guidance Note on Diversification of Financial Instruments for Infrastructure and SMEs. Ministers and Governors supported the effective implementation of the G20/OECD Principles of Corporate Governance, and G20/OECD High-level Principles on SME Financing.
Ministers and Governors endorsed the recommendations towards further strengthening the international financial architecture (IFA) developed by the IFA Working Group, committed to further strengthening the Global Financial Safety Net (GFSN) with the International Monetary Fund (IMF) at its center, and welcomed the upcoming CMIM-IMF joint test run. 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, and supported the WBG to implement its shareholding review according to the agreed roadmap and timeframe. Ministers and Governors supported the continued effort to incorporate the enhanced contractual clauses into sovereign bonds. Ministers and Governors supported the Paris Club's discussion of a range of sovereign debt issues, the ongoing work of the Paris Club, as the principal international forum for restructuring official bilateral debt, towards the broader inclusion of emerging creditors, and welcomed China's regular participation in Paris Club meetings and intention to play a more constructive role, including further discussions on potential membership. Ministers and Governors supported to continue to improve the analysis and monitoring of capital flows and management of risks stemming from excessive capital flow volatility, and supported examination of the broader use of the Special Drawing Right (SDR).
Ministers and Governors pointed out that recent market turbulence and uncertainty have once again highlighted the importance of building an open and resilient financial system and they remain committed to finalizing remaining critical elements of the regulatory framework and the timely, full and consistent implementation of the agreed financial reforms. Ministers and Governors welcomed the ongoing joint work by the international organizations to take stock of international experiences with macroprudential frameworks and tools. Ministers and Governors endorsed the G20 High-level Principles for Digital Financial Inclusion, the updated version of the G20 Financial Inclusion Indicators, and the implementation framework of the G20 Action Plan on SME Financing. Ministers and Governors called upon all relevant and interested countries and jurisdictions that have not yet committed to the BEPS package to do so and join the framework on an equal footing, and endorsed the proposals made by the OECD on the objective criteria to identify non-cooperative jurisdictions with respect to tax transparency. Ministers and Governors emphasized the importance of pro-growth tax policies and tax certainty, and asked the OECD and the IMF to continue working on the issues. Ministers and Governors condemned, in the strongest possible terms, the recent terrorist attacks, and reaffirmed their solidarity and resolve in the fight against terrorism in all its forms and will tackle all sources, techniques and channels of terrorist financing. Ministers and Governors agreed that green investment and green finance should be promoted to support global sustainable growth, and welcomed the G20 Green Finance Synthesis Report submitted by the Green Finance Study Group (GFSG) and the voluntary options developed by the GFSG. Ministers and Governors welcomed the Climate Finance Study Group's (CFSG) Report on "Promoting Efficient and Transparent Provision and Mobilization of Climate Finance to Enhance Ambition of Mitigation and Adaptation Actions", and would continue working on climate finance in 2017 with the objective to contribute to the discussions held under the United Nations Framework Convention on Climate Change (UNFCCC).
Minister Lou Jiwei stated that although recent events around the world have not resulted in big shock for financial markets, there is little room for optimism. Low global growth has become a new normal and the root cause of many problems, escalating social and economic conflicts. Under these circumstances, it is necessary for G20 members to strengthen cooperation, reiterate consensus reached at the G20 Finance Ministers and Central Bank Governors Meeting in Shanghai, and continue to use all policy tools – monetary, fiscal and structural –to foster confidence and strengthen growth. Firstly, demand management policy is still important. As the marginal effects of monetary policy are diminishing, more pro-growth fiscal policy should be implemented. Countries with fiscal space need to scale up spending. Secondly, structural reforms are needed in response to low growth tendency. Advanced economies should continue to improve labor market elasticity, and promote investment and productivity growth. Emerging economies should strengthen economic resilience, relax regulation, promote competition, and carry forward financial sector reform. Thirdly, it is important to continue support for economic globalization, resist all forms of protectionism, and restrain the use of trade restrictions. Fourthly, relevant countries need to address current challenges. It is hoped that the UK will be a close partner of the EU, which will send positive signals to the world and stabilize market expectations for the economic outlook.
According to Minister Lou Jiwei, during the first half of this year, China's GDP grew by 6.7%, and key indicators were in line with expectations. Major progress has been made in structural adjustments, and the quality of economic growth has been improved. The service sector as a proportion of GDP rose to 54.1%, the contribution of final consumption to GDP reached 73.4%, and the contribution of domestic demand to GDP increased to 110.4%. Energy consumption per unit of GDP declined by 5.2% year on year. In particular, the employment situation remained stable, with 7.17 million jobs created during the first half of this year. China's economy is still the "driver" and "anchor" of the global economy. In 2015, China contributed roughly 30% to global economic growth. The contribution rate is expected to remain at a relatively high level this year.
Minister Lou Jiwei pointed out that the G20 has made a new and significant step in structural reform agenda. A framework has been initially established to provide policy recommendations and assessment methods for the G20 enhanced structural reform agenda and improve the coordination and effectiveness of members' reform actions. The G20 will adjust the structural reform framework over time to take into account changing circumstances and support strong, sustainable and balanced growth.
Governor Zhou Xiaochuan stated that the Chinese economy maintained a stable growth while making some progress in the first half of this year. The economic growth was within reasonable range. The price and employment level was basically stable. China's economic performance faced a more complex external environment after the UK's referendum. The Chinese government has maintained the stability and continuity of macroeconomic policies while actively promoted supply-side structural reform, which is the only way to address the structural problems such as overcapacity. After a period of adjustment, market participants now have a deeper understanding of the RMB exchange rate regime. The RMB exchange rate against currency baskets is now basically stable, and market confidence has been boosted. Looking forward, we will continue to improve the RMB exchange rate regime based on market supply and demand and with reference to currency baskets, make our policies more rule-based and transparent, and strengthen communication with the market.
Governor Zhou Xiaochuan noted that a lot of progress has been made since the IFA working group was restored. The G20 should continue to advance the 15th General Quota Review, with a further increase in the quota shares of emerging market and developing countries. Continuous efforts need to be made in promoting the inclusion of the enhanced contractual clauses. The Paris Club's ongoing work towards the broader inclusion of emerging creditors is welcome. Further work is needed to enhance the cooperation between the IMF and Regional Financing Arrangements (RFAs) and improve the IMF toolkit. The use of the SDR should also be broadened. The People's Bank of China has released its BOP and IIP data in the SDR, and has been studying the possibility of the issuance of SDR-denominated bonds in China.
Governor Zhou Xiaochuan stressed that recent years had witnessed notable progress in financial sector reform, and the global financial system had become more resilient. The G20 should remain committed to building an open, strong and resilient financial system, including further implementing global financial sector reform agenda, promoting the effort to take stock of and summarize experiences with macro-prudential frameworks and tools, and strengthening the regulation and oversight of financial market infrastructures. He noted that the G20 had made positive progress in developing digital financial inclusion and financial inclusion indicators and data. Next, efforts should be made to further promote financial inclusion so as to enable economic growth outcomes to benefit all.
Governor Zhou Xiaochuan introduced that the G20 Green Finance Study Group (GFSG) has achieved preliminary results and completed the G20 Green Finance Synthesis Report. Based on country circumstances, all GFSG members have studied in depth on how to mobilize more resources through financial innovation, knowledge sharing and capacity building, risk analysis and international cooperation, which could provide useful references for promoting the global development of green finance.