Remarks at China Development Forum: Envisioning the 2016 G20 Summit in China
China Development Forum (Parallel Session 2): Envisioning the 2016 G20 Summit in China
Remarks by Angel Gurría,
19 March 2016
Beijing, People's Republic of China
(As prepared for delivery)
Dear Vice-Ministers, Distinguished Guests, Ladies and Gentlemen:
It is my great pleasure to be with you today. The OECD is proud to be working closely with China’s G20 Presidency towards an innovative, invigorated, interconnected and inclusive global economy. We will continue to share our multidisciplinary expertise, knowledge, tools and data to boost growth, increase investment, encourage innovation, lift employment and promote inclusiveness in the lead up to the Leaders’ Summit in Hangzhou.
Global economic context
We need to pool all of our energy and efforts – eight years after the crisis, the recovery remains weak and uneven. The OECD’s February 2016 Interim Economic Outlook further downgraded global growth forecasts to 3% for 2016 and 3.3% for 2017 – well below long-run averages.
It is also worrisome that the pressures undermining the global recovery are actually intensifying.
- Global trade remains abnormally low, growing by only 2% in 2015. The figures are even bleaker for global FDI flows.
- Sluggish demand continues to generate deflationary pressures, impeding wage and employment growth.
- Threats to financial stability are rising. Many emerging markets face vulnerabilities linked to currency exposures and/or high domestic debts, undermining their recoveries.
- Moreover, productivity growth, already decelerating in most countries over the last decade, remains very low.
In short: the current policy mix is simply not delivering!
It is now clear that accommodative monetary policies are not enough. They should be coupled, where possible, with cautiously expansionary fiscal policies. Structural reforms, as highlighted by our 2016 Going for Growth report, which I launched with Minister Lou Jiwei in Shanghai last month, must also regain momentum if we are to achieve the G20’s objective of strong, sustainable and balanced growth.
Actions for the G20: Boosting investment and reviving productivity
In the short-term, G20 countries should commit to collectively raise public investment in high‑multiplier projects – such as infrastructure – to boost demand, while ensuring fiscal sustainability. In undertaking such investments, we must not only focus on quantity, but also quality.
The OECD has just released a brochure on investment policy challenges for China, which focuses precisely on this issue. We stand ready to support a new approach to investment in China that is productive, responsible, and inclusive, and in which the market takes on a greater role.
The OECD welcomes the Chinese Presidency’s prioritisation of infrastructure investment and connectivity. We are leading G20 work on diversified approaches to financing infrastructure, as well as partnering with the World Bank to co-host a G20 seminar on global infrastructure connectivity next month.
Over the longer-term, reviving productivity will be key. The OECD’s Future of Productivity report reveals that the productivity slowdown is not so much the result of slowing innovation by the most globally advanced firms, but rather a slowdown in the pace at which innovations spread.
In fact, the productivity growth of the globally most productive firms remained robust in the 21st century, but the gap between those high productivity firms and the rest has grown. In the manufacturing sector, we estimate this gap at around 3% per annum in the 2000s.
It’s clear that the knowledge and technology diffusion “machine” is broken. Wide-ranging structural reforms that promote trade, encourage innovation and boost competition are needed to fix the machine. Let me address each of these areas in turn.
First, trade. Firms at the global frontier are mostly multinational companies. The intensity of cross‑border connections via trade and investment is crucial to diffuse knowledge and technologies to national firms. The OECD is actively contributing to the Chinese Presidency’s trade and investment agenda, through joint work with the World Trade Organisation (WTO) and the World Bank on the determinants of trade costs and policy responses, e‑commerce, and the shortcomings and deficiencies of the international investment treaty system.
Second, innovation. Productivity growth requires higher investments by lagging firms in innovation, new technologies, and knowledge-based capital, including skills. Indeed, skilled people play a crucial role in innovation through the new knowledge they generate, how they adopt and develop existing ideas, and through their ability to learn new competencies and adapt to changing environments. The OECD is collaborating closely with the Chinese Presidency on innovation and the digital economy, supporting the development of a Blueprint for Mobilising New Sources of Growth and conducting work on the impact, challenges and policy implications of new and emerging technologies, including pathways to develop the Internet of Things, privacy in a data-driven economy and fostering skills for the digital age.
Third, competition. For reforms to succeed, firms need the right incentives to develop new and better-quality products at lower costs. Competition policy is thus a vital complement to innovation. Structural reforms are needed to facilitate firm entry and exit and enable the smooth reallocation of scarce resources to firms with a high productivity or high growth potential.
Ladies and Gentlemen:
We cannot revive productivity growth without ambitious, collective action in investment, trade, innovation and competition. And these are the areas in which the Hangzhou Summit can yield game-changing G20 deliverables.
These deliverables will help us grow the pie – which is important, but not enough.
We must also make sure everyone gets a fair share of the pie. Looking ahead to Hangzhou, I cannot stress enough the importance of the G20’s work to promote inclusive growth and enhance productivity, by reducing gender gaps in the labour market, boosting youth employment, and equipping the most vulnerable groups with relevant skills to thrive in modern and dynamic economies.
The OECD looks forward to continuing to support G20 initiatives aimed at promoting productive economies for inclusive societies – the focus of our own OECD Forum and Ministerial Meeting in June. We need all hands on deck. We should all bring our different perspectives, experiences and approaches to the table if we are to achieve our shared ambition for an innovative, invigorated, interconnected and inclusive global economy.