OREANDA-NEWS. October 06, 2014. The G20 Financial Ministers and Central Bank Governors’ Meeting was held in Cairns, Australia. The ministers and governors discussed the current global economic situation, G20 comprehensive growth strategy, long-term investment, financial regulatory reforms, international tax cooperation, and etc. A Communique was released after the meeting. Governor Zhou Xiaochuan and Finance Minister Lou Jiwei attended the meeting.

The financial ministers and governors welcomed the stronger economic conditions in some key countries, although growth in the global economy is uneven. The global economy still faces weakness in demand, job creation is inadequate, and downside risks persist. Against this background, the G20 members have developed new measures that are expected to lift their collective GDP by an additional 1.8 percent through to 2018, above the trajectory implied by policies in place at the time of St Petersburg Summit in 2013. G20 members are urged to take more policy measures to lift their collective GDP by more than 2 percent by 2018.

The meeting underpinned the importance of infrastructure investment in boosting demand and lifting growth, and had agreed to a Global Infrastructure Initiative. The Initiative will seek to increase quality investment, particular in infrastructure, through providing a knowledge sharing platform, developing a consolidated database of infrastructure projects, and improving investment climates. The implementation program for the Initiative will be announced by G20 Leaders at the Brisbane Summit in November.

The ministers and governors pledged to complete the two-year G20/OECD Base Erosion and Profit Shifting (BEPS) Action Plan; endorsed the finalized global Common Reporting Standard for automatic exchange of tax information on a reciprocal basis; and pledged to begin exchanging information automatically among G20 members and other countries by 2017 or end-2018, subject to the completion of necessary legislative procedures. The meeting also reviewed the progress in financial regulatory reform, set stronger capital requirements for global systemically important banks, and urged regulatory authorities to proceed with the reforms of the over the counter (OTC) derivatives market, and asked the FSB to deliver the remaining core elements of its shadow banking framework by the Brisbane Summit. It was emphasized at the meeting that the IMF quota and governance reform remains a key priority of the G20 and urged the US to ratify the reform programs as agreed in 2010 by year-end.

Minister Lou Jiwei provided an update of the current economic situation in China. Mr. Lou said that the Chinese economy in general maintains steady growth momentum, and economic performances remain within a reasonable range. In the first eight months, the employment situation was fairly good, although China still faced the pressures of decelerating growth. Against this backdrop, China’s macroeconomic policies will continue to focus on the overall targets, in particular on maintaining job creation and price stability. Major policy adjustments will not occur merely because of changes in any single indicator.

In terms of the fiscal policy, the Chinese government has taken the following measures to promote economic growth: first, to further reduce the tax burden for small and micro enterprises; second, to attract private participation in infrastructure investment and clean energies industries through the means of public and private partnership (PPP) and etc; third, to continuously unleash growth potentials by deepening the reform. Among the 336 reform proposals outlined at the 3rd Plenum of the 18th CPC National Congress, the fiscal authority has taken charge of more than 70 reforms, and participated in the implementation of more than 100 reforms. As an important recent progress in reforms, the Standing Committee of the National People’s Congress passed the Amendment of Budget Law, and made the budgeting process more comprehensive, transparent, forward-looking, and disciplined. The new Budget Law will come into force on January 1, 2015. In the meantime, the Chinese government has promoted reforms in the realms of state-owned enterprises, household registration, rural land utilization, and etc. These structural reforms will further promote economic growth. We are confident in boosting growth primarily through reforms.

In terms of increasing infrastructural investment, Mr. Lou said that since China adopted stimulus measures to promote economic growth in response to the international financial crisis, a number of issues have surfaced such as excess capacity, environmental pollution, looming local government debts, and etc. Therefore, we cannot solely rely on public and fiscal funds to carry out massive infrastructural investment. The 3rd Plenum of the 18th CPC National Congress highlighted the need to attract private capital in the building and operation of infrastructural projects. The Ministry of Finance has taken this requirement into account in addressing the stock of local government debts, and actively developed the PPP model in the following three respects: first, 80 PPP projects have been launched to attract private capital; second, the PPP centre has been established to provide standardized PPP templates for all sectors; third, training was carried out for local fiscal department officials, to promote government officials to change their mindset and guide them in carrying out the PPP projects according to the PPP classification. The Chinese government will continue to move on this track, and increase the scale and quality of infrastructural investment on an on-going basis.

Governor Zhou Xiaochuan commended the efforts by G20 members in promoting reforms in the areas of employment, investment, competition, and trade to realize growth targets, and briefed participants on China’s experiences in structural reform, focusing on urbanization and the service sector development. With respect to urbanization, Governor Zhou pointed out that China’s current urbanization rate is about 55 percent, meaning that 45 percent of the population still lives in the rural areas and there is still large room for further urbanization. The Chinese government had strived to push ahead with the new-type urbanization, which is an important part of the growth strategy.

The new-type urbanization is unlike the traditional model of urban cities, which is usually accompanied with environmental pollution, congestion, urban slums, and other serious city diseases. To promote the new-type urbanization, first, efforts should be made to bridge the gap between urban and rural areas, and a number of safeguard measures should be taken during the transformation of rural residents into prospective urban residents, including tax policy and public services such as elderly care, social welfare, education, medical services, and so on. Second, efforts should be made to solve the financing problem of urbanization, which requires strong support of the financial sector. In the future, reforms will be initiated to addressing the local government financing problem to bridge the funding gap for local development. With respect to the service sector development, Governor Zhou said that the share of service sector in GDP has risen to 46 percent in 2013, which is still low compared with other developing countries with a similar per capita GDP. For the time being, the Chinese government attaches great importance to the development of the service sector.

Firstly, efforts should be made to change our mentality, recognizing that public services can also be provided by the private sector, and to gradually relax regulation on the service sector. Secondly, the financial sector should step up its support to the service sector. Commercial banks and the capital market used to favor the manufacturing industry, and they ought to change their mindset, and render robust support to the service sector. China is willing to share experiences with other countries in strengthening banking system and deepening the financial market to promote urbanization and the service sector development.

Governor Zhou pointed out that the FSB has done an excellent job in addressing the international financial crisis and strengthening the resilience of the financial sector, providing an important reference for decision making by the G20. The PBC supports the efforts of the FSB in increasing the capital of global systemically important banks, the overall capacity to absorb losses in particular, and in reducing systemic risks. He reiterated that flexibility should be applied in implementing these new regulations, taking full account of the different national circumstances and capital market developments. He urged countries to facilitate the implementation of reform on regulation of derivative trading and strengthen regulatory cooperation. As different shadow banking businesses have different economic impacts and problems, further classification is needed to take responding response measures more accurately.