How Tectonic Shifts in the Global Economy Will Affect Global Governance
Valdai Discussion Club Conference Hall (Bolshaya Tatarskaya 42, Moscow, Russia)
List of speakers

On Thursday, June 13, the Valdai Club conference hall hosted a seminar to review the plenary session of the St. Petersburg International Economic Forum, which featured Russian President Vladimir Putin and Chinese President Xi Jinping for the first time in the history of the annual event.

The subject of the discussion held by the experts who had gathered at the club was problems facing the world economy and how it can be regulated. These issues were raised at the plenary session of SPIEF-19, primarily in the speeches of Russian President Vladimir Putin and Chinese President Xi Jinping.

During the expert discussion, it was noted that tectonic changes which were taking place in the world economy will require further analysis, and that at the moment, there is no complete clarity on what particular consequences these changes will have. Experts noted that special attention should be paid to the role of technological innovations, which now serve as the main driver of economic growth, as well as the importance of regionalism, i.e. the formation of new regional associations and unions for the development of global governance.

It has been suggested that regional integration may be the most important element in the transformation of the structure of the global economy. This process can proceed through the formation of a platform for interaction between the largest regional integration groupings, through what can be called the “regional twenty”.

The panellists agreed that the main question was what practical steps should be taken, and which should be taken first.

Thus, in the context of changing the architecture of the world economy, the importance of the Russian president’s proposals to move beyond the trade and sanction restrictions targeting medical supplies and other goods of humanitarian importance was noted. The importance of regional projects, such as the EAEU and the Belt and Road Initiative, along with other regional initiatives in Eurasia noted by the leaders of Russia and China, can give an important impetus to the processes of openness in the global economy under the conditions of globalisation in developed countries.

Also, experts say, new formats for addressing world economic relations will be created by regional organisations and centres of integration like the SCO, which is beginning to morph from a security organisation into an economic unit. The SCO may become a serious player in developing the rules defining international cooperation. At the same time, experts believe that regionalism provides an effective alternative to the “great game” between the United States and China, which the world economic system is in danger of becoming.

The processes accompanying the regionalisation of the world economy were also analysed in a Valdai Club report which was prepared for SPIEF-2019, on the role of regional integration in the transformation of the global economic architecture. The key proposal outlined in the Club’s report is the formation of a platform for interaction between the largest regional integration groups: the so-called “regional twenty”, or R20. The expert panel discussion at the Valdai Club seminar confirmed the importance of regional integration as a key factor in the transformation of the world economic system.

In his speech at the plenary meeting, Vladimir Putin called for the world trade system to be adapted to modern realities, as well as for an increase in the efficiency of the World Trade Organisation. During the course of the expert discussion, difficulties were noted that are associated with the relatively limited-in-scale reform of existing international institutions, such as the WTO. Experts pointed to the factual insufficiency of real attempts to change the existing structure of the world economy. Palliative adjustments, in the form of minor changes in the rules for the functioning of multilateral organisations, cannot by themselves produce qualitative changes for the global trade system.

In essence, experts noted, in the modern world there is a certain contradiction between the need to reform the international institutions necessary for the global regulation of the current, super-interdependent world economy, and the need, no less important, to preserve existing organisations that continue to play an important role.

Some participants in the discussion pointed out that major world players such as Moscow and Beijing generally support the preservation of existing institutions of global governance, or prefer to act within their framework and, at least, do not offer their own models of the general world order and its financial architecture. So, China, despite its economic strength, does not challenge the US explicitly.

However, experts noted, it is possible that the whole question is about time, and it’s necessary that both China and Russia carry out certain internal changes in their banking sectors, in order to increase the stability of their own financial systems. It’s no wonder that China sees things as proceeding according to the principle of “drawing radii, expanding circles”, which means, experts say, China’s achievement of its peak of power by 2040. This will lead to a gradual increase in the space of Chinese influence and a dynamic expansion of this influence, far beyond the borders of the country.

During the discussion, an urgent need for de-dollarization was noted, primarily due to the fact that the current dollar has clearly become a tool for the issuer to place pressure on the whole world. However, at the same time, the complexity of this task was emphasised. It was said, for example, that introducing renminbi-denominated trading to the Moscow Stock Exchange requires the creation of appropriate conditions. So, we need a “swap pool” capable of buying and selling a certain supply of renminbi, and we need to allow exporters to China to use renminbi and exchange them for other currencies. The experts concluded that the renminbi could soon become an alternative to the dollar.

Experts were cautious about China’s credit policy. Borrowing in RMB is much more expensive than in dollars or even rubles, since Chinese banks are not ready to lend to Russian organisations at internal rates, the experts said. Since Russia has shown that it can withstand the pressure of sanctions on its own funds without Chinese financing, a certain degree of parity appears in relations between the two countries, the expert added.

At the same time, the aforementioned difficulties can be resolved sufficiently through the establishment of regional processes. A worldwide network of economic regulation can therefore be gradually created using regional unions. It was opined during the discussion that perhaps there is no need to immediately look for any global solutions, as they will emerge through the interaction of regional associations and unions.

Another topic of discussion was technological development. This topic was clearly voiced in the Russian President’s speech at the plenary session of the SPIEF, where Putin spoke about the technological development agenda. An attempt was made to assess the fact that the driver of progress is changing, experts noted. Whereas previously, trade drove progress, now this role is played by technology. However, a series of confrontations is unfolding in both trade and technology. In one of his speeches for the domestic audience, Xi Jinping said that trade disputes with the United States and the impact on Huawei could force China to take a "great march", the panellists noted. At international forums, the Chinese leaders speak carefully; the Chinese president’s recent speech confirmed this rule of thumb. However, this does not mean that China has gone soft, they say. China is attempting a strategic manoeuvre, which begins with a retreat. According to experts, this contains a message regarding a strategic partnership with Russia, which would allow it to survive and win this technological war.

Regarding Russian-Chinese relations proper, the experts agreed that, despite the obvious difficulties, the speed at which relations between the countries are developing is impressive and that the Russian-Chinese union itself has become a very important element of world politics and the world economy.

The results of the St. Petersburg International Economic Forum can be found on the official website of the event. In addition, the Analytical Information System of the Roscongress Foundation contains brief analytical reviews of discussions, describing the findings, problems and solutions voiced during the talks held at SPIEF-2019.