The Hangzhou G-20 summit and shifting trade ties

When the world's most powerful leaders met at the G-20 Summit in Hangzhou, China on Sept 4-5, prospects for improving international trade topped the agenda. Although the G-20 leaders vowed to increase policy coordination, strengthen innovation for economic growth and make global economic and financial governance more efficient under the so-called "Hangzhou Consensus", few concrete policy initiatives emerged from the meetings. Some pundits and analysts were quick to lambast the summit for seeming to be preoccupied with Dr Angela Merkel's facial expressions, or Mr Barack Obama's stair-less arrival in Hangzhou.

Even though the G-20 was overshadowed by an unusually large number of Chinese vessels stationed in close proximity to the highly disputed Scarborough islands and the Philippine coast, security issues barely registered on the radar of the assembled leaders. Their presence was particularly provocative, given the recent South China Sea ruling against China. Philippines Defence Secretary Delfin Lorenzana warned that further escalation in the dispute is a real possibility given China's relentless stance, arguing that "if they try to construct anything in Scarborough, it will have far-reaching adverse effect on the security situation". US President Obama had previously urged China to refrain from aggressions, including violating international norms in the South China Sea. While the presence of Chinese vessels shows that China remains firm about its maritime claims and power ambitions, it sends a clear message to the West that its place among the world's most powerful will not be disputed, as it has long feared Western states will seek to deny Beijing its rightful place on the international stage.

As for the actual G-20, no headway was made towards defusing the conflict. It seems participants took to heart Vice-Foreign Minister Li Baodong's advice (or gag order, depending on your definition) that the summit's priority be the advancement of global trade and investment. As Mr Li put it, all parties should "stay concentrated and focus on the economy". With China smarting from The Hague tribunal's scathing rebuke, Beijing was craving to showcase its status as a responsible world power and distract attention from its maritime adventures. Unsurprisingly, The Australian newspaper bemoaned that the G-20 had "nothing to show from world leaders".

Looking just at the dry wording of the official communique, however, is a poor way of assessing the summit's achievements. What is more interesting is the diplomatic jostling going on behind closed doors, which are much more significant and indicative of the mood of international politics. From this point of view, the summit proved to be quite a meaty affair and yielded several interesting developments - just not on the topics people were expecting to hear about.

Chinese President Xi (right) welcoming EU Commission president Mr Juncker in Hangzhou on Sept 4. One of the main themes tackled was the longstanding issue of Chinese overcapacity in steel and its impact on the EU's steel sector. PHOTO: EUROPEAN PRESSPHOTO AGENCY

One of the main themes tackled was the longstanding issue of Chinese overcapacity in steel and its impact on the steel sector of the European Union (EU). At the summit, European Commission president Jean-Claude Juncker revealed that the EU is considering implementing a hard-hitting scheme of anti-dumping tariffs as a defence against Chinese producers for failing to reduce overcapacities. Though the formal tariff proposal is expected in the coming months, the hike is likely going to be cosmetic and would make it more difficult for Chinese producers struggling with overcapacity to benefit from waivers under a system called "lesser duty rule".

How did the summit change things? When the G-20 agreed to look into the creation of a "Global Forum on steel excess capacity", the Europeans had cause for celebration. Not only is this move indicative of a general acknowledgement - by China itself, no less - that steel overproduction is a global problem, but the forum would be the first concrete and collective action taken to reduce output and resolve trade disputes with China. Whether and how long it will take to get this project off the ground remains to be seen, but the G-20 leaders' decision seems to be at least a good first step in the right direction.

Another interesting development happened on the sidelines of the gathering, and points to a longer-term trend of political rebalancing that comes at the expense of the United States.

Feeling shunned by Washington after the Iran deal and squeezed by dwindling oil revenues, Saudi Arabia's Deputy Crown Prince Mohammed bin Salman has embarked on a globetrotting voyage to obtain foreign investment for his ambitious Vision 2030 economic programme. After pushing for a Saudi-UK trade deal in July that would deepen an already strong relationship, the prince touched down in Hangzhou to pursue Saudi Arabia's pivot to Asia. According to the plan, Saudi Arabia - owing to its crossroads position between Europe, Africa, Asia and the Middle East - is in the foremost position to act as a bridge for economic interests of the countries of the Pacific Rim.

Consequently, during his China trip prior to the G-20 Summit, the two countries signed 15 agreements and memorandums of understanding. Furthermore, Chinese information and communications technology solutions provider Huawei received an investment licence from Saudi Arabia, allowing the company to sell its products directly to the Saudi market, while Saudi oil producer Saudi Aramco has been in talks with China National Petroleum Corporation (CNPC) and Sinopec for investment opportunities in refining, marketing and petrochemicals. Because of its position as the largest oil provider to China, Saudi Arabia is regarded by the Chinese as a safer investment than other emerging economies.

Whether it was coaxing China into paying more than just lip service to cutting overcapacity or Beijing building ties with Saudi Arabia, a country which did not even recognise China before 1990, the Hangzhou G-20 was anything but dull.

Security issues were unceremoniously brushed aside by the hosts, but the renewed focus on building trade ties in a world that is increasingly turning inwards should not be ignored.

  • The writer is an independent researcher on Asian military and international affairs based in Taiwan
A version of this article appeared in the print edition of The Straits Times on September 13, 2016, with the headline 'The Hangzhou G-20 summit and shifting trade ties'. Print Edition | Subscribe