Remarks by Angel Gurría
6 November 2018 - Beijing, China
(As prepared for delivery)
Dear Premier Li:
Thank you for this invitation to the third 1 + 6 Roundtable Meeting. This is an important opportunity for discussion on the global economic landscape and China’s reform and opening up.
Let’s begin immediately with the challenging global context. The OECD’s September Interim Economic Outlook suggests the global expansion may now have peaked. Global GDP growth is projected to settle at 3.7% in 2018 and 2019, falling short of pre-crisis growth rates of around 4%.
Inequalities of income, wealth and opportunity continue to divide our societies and fuel political uncertainty and turbulence. In the OECD, the income gap between the top and the bottom deciles is now almost 10 times, up from 7 times in the 1980s. We have to reverse these trends with growth that is more inclusive, which empowers people and places that have been left behind. This is why the OECD has developed its Framework for Policy Action on Inclusive Growth, which provides 24 indicators to ensure a more equitable distribution of the benefits from economic growth.
As we discussed at last year’s Roundtable, keeping growth inclusive and markets open is the key to strong, sustainable global economic growth. However, trade growth — which powered the global expansion in 2017 — has slowed, amidst rising trade tensions and heightened trade policy uncertainty. This is deeply concerning when you recall that OECD data shows that each dollar of tariff reduction adds around 90 cents to global household incomes, while new tariffs cost global households 40 cents.
The OECD is supporting governments — and complementing the work of the International Organisations around the table — to ensure trade remains open and works for all. We are expanding measurement of government interventions that tilt the global playing field; advancing legally binding rules, voluntary guidelines and codes; and providing a forum for transparency and dialogue, including the G20 Global Forum on Steel Excess Capacity.
Increasing and improving multilateral co-operation across the board will be critical to ensure that all our countries can address the inherently cross-border and interconnected challenges that define our times.
OECD work on trade is just one example of our efforts to strengthen multilateral co operation. For example, the OECD’s work on the Automatic Exchange of Information for tax purposes has helped governments to collect more than USD 100 billion in additional tax revenue worldwide. And through the OECD G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS), over 100 countries and jurisdictions are collaborating to implement measures to tackle BEPS. The OECD is also working with UNDP to help boost capacity for domestic resource mobilisation in developing countries, through initiatives like Tax Inspectors Without Borders (TIWB). More broadly, the OECD is playing a key role in the implementation of the 2030 Agenda for Sustainable Development and the Paris Agreement.
At a time when multilateralism is being questioned, the solution is not to give up on it! Rather, we should take the opportunity to shape the type of multilateral co-operation that global challenges require. This means taking decisive, collective steps to address ongoing challenges, such as market-distorting support to internationalised state owned enterprises or to certain sectors, which is contributing to overcapacity. We need to bring all parties to the negotiating table and exchange best practices, internationally recognised standards and policies.
In this spirit, let me commend China on its exemplary initiative to establish the Global Forum on Steel Excess Capacity during its G20 Presidency in 2016 (Hangzhou Leaders’ Summit). Our deepening co operation with China has also included engagement far beyond steel in other key initiatives to level the global playing field and make globalisation work for all. I’m talking about our work together on the OECD G20 Principles on Corporate Governance, the OECD Codes of Liberalisation of Capital Movements and of Current Invisible Operations as well as the ongoing consultation on addressing foreign bribery and promoting responsible business conduct (RBC).
We are all responsible for strengthening multilateralism. The OECD stands ready to work with China and to play its part in this collective effort.
Turning from the international context to China’s economy, GDP growth is projected to ease slowly to below 6.5% in 2019, given declining industrial production and moderating infrastructure investment and credit growth. With the depreciation of the renminbi helping to counteract the impact of higher tariffs, headwinds from trade tensions remain manageable, but could intensify.
On the domestic front, the major risk is excessive corporate debt: while it has decreased by more than 10 percentage points in recent years through deleveraging, it remains high at 160% of GDP. Accelerating corporate deleveraging is necessary to restore balance sheets amid rising debt service costs. While slower deleveraging would deliver stronger growth in the short term, it would increase imbalances later.
2018 marks the 40th anniversary of the start of China’s reform and opening up process. In the wake of the 19th Party Congress, there is a renewed imperative to put China on a more sustainable, high-quality, and inclusive growth path.
In this spirit, the OECD has prepared a report, China: Better Policies for More Inclusive Development, which provides an overview of the policy challenges facing China as it strives to make development more coordinated, inclusive, innovative, open and green. Let me share with you some of its key recommendations.
First, more coordinated development in China is critical. This means tackling overinvestment and excess capacity to achieve higher efficiency regarding the allocation of capital. It also requires investing in sustainable infrastructure to combat climate change, restructuring and seeking greater efficiency through a level playing field for state-owned enterprises, and improving fiscal equalisation programmes across regions to reduce disparities.
Second, China’s development needs to be more shared, more inclusive. Despite progress tackling poverty, especially in rural areas, inequalities in China remain relatively entrenched, with the richest 1% holding one third of total wealth. Boosting human capital is central to overcoming inequality and ensuring the benefits of growth are available to all. This means investing further in skills, skills, skills — skilling, upskilling, reskilling! There is also scope to deliver a more equitable distribution of wealth through taxes and transfers.
Third, China stands to gain from boosting innovation. China is making fast progress in many areas of the digital revolution, but fully sharing the benefits requires renewed efforts to: increase Internet access and usage through more competitive broadband markets and prices; and enhance the application of patents, streamline the subsidy system and strengthen intellectual property rights to help translate innovation into productivity growth.
Fourth, further opening of the Chinese economy can be a powerful engine for inclusive growth and better outcomes. China needs to promote competition and ease of access of foreign investors to domestic markets, enhance its public procurement system and increase trade in services. Liberalising trade in services is particularly important, given that services generate over half of China’s GDP and employ more than a third of its workforce. Additional reforms, particularly in the digital network and in the services underpinning global value chains — transport, logistics, telecommunications, and computer services — would consolidate the services sector as a key driver of China’s growth.
Last but not least, greening the economy is a defining priority for China. China is the world’s largest emitter of CO2, and local air quality in many of its major cities is below national and international health standards. Outdoor air pollution is estimated to have caused over 1 million premature deaths in China in 2015, at a cost of USD 1.6 trillion. For more environmentally sustainable development, China must continue to support the transition to clean energy, promote green finance and investment, enhance environmental taxation and improve market-based instruments, reform fisheries, and address growing water risks for agriculture.
The OECD is committed to support China in these areas and is proud to count China as a Key Partner. Over the past two decades, we have worked together — including in the context of China’s 2016 G20 Presidency — to bring China closer to international standards in taxation, competition, corporate governance and due diligence. We have also integrated China in key OECD analysis and data, including our Economic Surveys and indicators such as PISA, TiVA, STRI, and the FDI Restrictiveness Index.
Our forthcoming Joint Work Programme for 2018-2020 will advance our mutually beneficial co-operation in the areas of export credits, development assistance, excess capacity in industrial sectors, international bribery, statistics, and responsible business conduct. The OECD also stands ready to help China implement international best practices along the Belt and Road, such as the OECD Recommendation on Public Procurement, the Export Credits Arrangement and the Anti Bribery Convention.
You once said that “reform is the biggest dividend for China”. As China accelerates its reform efforts in the New Era, please count on the OECD as a friend and partner to design, develop and deliver better policies for better lives. Thank you.