With China set to be world's largest economy by 2020, what use is the G20 summit?

The G20, is the main co-ordinating body for economic policy in the world – the 20 more-or-less largest economies, accounting for more than 80 per cent of global GDP. It was created in 2008 alongside the earlier grouping of the G7 developed economies, to reflect the power of the so-called emerging world and in particular China and India.

Its next meeting this weekend is in Hangzhou, the ancient and rather lovely city an hour’s train ride south of Shanghai. It is a good place to take a long view of economic history and indeed what drives prosperity, for it was described by Marco Polo when he visited in the late 13^th century as “without a doubt the finest and most splendid city in the world”.

It is good place too, to take a long view of the value of the G20, for except for the first two meetings it hasn’t done anything of note. The initial meeting was held in November 2008 just after the collapse of Lehman Brothers, in Washington. It established the idea that if they pulled together the world’s leading economies could indeed preserve growth despite the financial disaster. The programme was announced at the next meeting in London in April 2009 – and, well, it did the job of restoring confidence, whatever you think about the longer-term issues facing us all.

But since then nothing much has happened. Sure, there have been fine words. For example the Brisbane summit in 2014 pledged to lift global growth by 2 per cent more than it would otherwise have been, and the Turkish one last year asserted that governments would combine to fight terrorism. But as for the great challenges facing the world economy, including getting interest rates back to some sort of normality, there has been nothing.

There has been nothing for two good reasons. One is that there is no consensus. The other is that countries will pursue what they perceive to be in their own self-interest, or at least to focus on their own preoccupations. So the Eurozone is worrying about its banking system, its divergent growth, the tensions between its members, and so on. The US is concerned about its own domestic problems including the plight of the middle-earners, but actually has made a decent enough recovery. And China is concerned about itself, as always. As for the UK, you’ve got it. There is one issue and one only, and we know what that is.

You can react to this in two ways. One is to say that we have a global economy but no global economic leadership. The other is to acknowledge this, but say it doesn’t matter. You needed leadership in the fraught years of 2008 and 2009, but nowadays as long as there is reasonable competence and reasonable co-operation that is good enough. As and when the world heads into another global downturn the mechanism is in place to enable countries to pull together.

So what we should expect from this weekend will be a series of understandings over specific issues that require governments to talk to each other at the highest level. These include whether we should go ahead with the new Hinkley Point nuclear power station, where both ourselves and the French need an out. Another is the future of the US/Europe trade and investment deal, which may well be dead anyway. There are also many other specific issues, political as well as economic, that need to be settled on a bilateral basis. Some react to this by saying that as long as people have low expectations of this G20 they won’t be disappointed. But that is a bit mean. At least there is a forum whose membership reflects the shift in economic power to the emerging world.

However there is a huge underlying issue that is illustrated by the apparent impotence of the G20 as a policy co-ordinating mechanism. It is that China is soon to become the world’s largest economy, passing the US, but neither does it see itself as a co-leader with the US in economic management, nor would the rest of the world and especially the US accept it in this role.

That surely will be the great challenge of the next generation. How do the US and China manage the rebalancing of power? The US will remain the technical and intellectual leader, despite its clunky political system. But sheer economic might will shift to China. If you measure GDP at market exchange rates this is likely to happen in about 10 years’ time. At purchasing power parity exchange rates the Chinese economy is already number one. See this G20 summit as symbolic of the shift to a more balanced world, and remember how impressed Marco Polo was when he visited what was then a far larger and more sophisticated economy than that of Europe.