© REUTERS/Saul Loeb/Pool

As a journalist accredited to cover last weekend’s G20 meeting in Hamburg, I felt a bit like Berlin’s new panda bears: an exotic, encaged, and expensive guest.

For those of you more familiar with world affairs than animal affairs, Meng Meng and Jiao Qing are two new bears on long-term loan to the German capital. It’s a new twist on Chinese panda diplomacy that stretches back to the days of US President Richard Nixon. Berlin zoo built a new €10 million pagoda, will feed the bears a small fortune in bamboo shoots daily and has promised Beijing €1 million a year in rent.

Last week President Xi Jinping and Chancellor Angela Merkel officially opened the enclosure and, as Beijing sees it, a new chapter in China’s efforts to fill a place in global leadership vacated by the Trump administration.

The following days I was one of the thousands of journalists in another expensive enclosure, this time in Hamburg. Germany’s outward-looking harbor city was built on trade and was thus, we heard, an ideal host city given competing views on whether globalization tide lifts all boats.

For the G20 summit, Hamburg’s trade fair was transformed into a high-security conference area and adjoining panda, sorry, press pen. Behind two – or was it three? – security checks, the press area was in three parts: a functional working area, a dining area, and a “chill-out” lounge area that echoed the aesthetics of countless tech startups: exposed wood, random cushions, table football, and a massive stuffed lobster.

Given the comfort of our enclosure, and the excellent catering, it was easy to forget why we were there at all. At an estimated, conservative cost of €130 million, Chancellor Merkel was hosting us – and the presidents and prime ministers from the United States, China, France, India, Indonesia, Australia, and more. The leaders of two thirds of the world’s population held sessions to discuss issues of global importance: climate change, trade, and security.

Negotiation Marathon

Behind the scenes the real G20 played out. After months of preparation, it boiled down to a 48-hour all-night negotiation marathon. In the end, full agreement was not possible and the G20, for the first time, issued dissenting positions in its final communiqué.

The climate section reflected the Trump position that economic growth and energy security take priority over reducing carbon dioxide emissions. The other delegations agreed to “take note” of last month’s US withdrawal from the Paris agreement. They described the climate deal as “irreversible” and reiterated their determination to move “swiftly” to full implementation.

On trade, the other key issue, the Trump delegation agreed with others on the importance of “reciprocal and mutually advantageous trade and investment frameworks” and a need to “fight protectionism”. But, in a concession to the US, the final statement recognized the role of “legitimate trade instruments” and demanded “concrete” solutions by November from a G20 sub-body on what to do about a surplus of steel on world markets.

Seven months after the “America First” president took office, Donald Trump held a closely watched meeting – his first – with Russian president Vladimir Putin, then skipped out of town without holding a press conference. With characteristic hyperbole he described the Hamburg summit on Twitter as a “wonderful success.”

For Merkel, Hamburg was a mixed blessing. She succeeded in holding the G20 together on globalized trade, for now, and prevented further cracks emerging over the Paris climate deal.

But when Germans go to the polls in September, few will remember the G20 communiqué and many will remember three nights of running street battles, traumatized Hamburg residents, looted stores, and burnt-out cars.

Small Steps

On the final day of talks, a seasoned if exhausted G20 official suggested Europe was “moving in small steps toward a certain normality” with the Trump administration. The official left open what that normality will be.

My inkling of that new normality took shape as I departed my Hamburg press pen after two days of expensive activity, catching up with remarks of departing G20 leaders. While Trump promised on Twitter to “fix the many bad trade deals” the US has signed, another had urged colleagues to recognize the need for “interconnected growth for shared prosperity.”

The plea for growth and co-operation was not from Trump but Xi Jinping, president of China. His last words to the G20 colleagues: “Those who work alone, add; those who work together, multiply.”

In the era of diplomatic innovations – from Trump on Twitter and to leased Chinese panda bears – Hamburg had the air of an American Requiem.

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© REUTERS/Hannibal Hanschke

In November 2008, as the global financial fire sparked by the collapse of Lehman Brothers threatened to burn out of control, the leaders of the world’s twenty biggest economies met for the first time.

Desperate to get a handle on the unfolding crisis, they decided to transform the G20, a largely irrelevant grouping founded in 1999 which had never before conducted a leaders’ summit, into the main economic council of wealthy nations, replacing the G8 (now the G7).

A decade later, the now-annual summits have become just that. But the destabilization of old alliances caused by the election of Donald Trump in America could mean that this year’s summit in Hamburg, which begins on July 7, could be the last – or, at least, the last at which G20 is a body of any significance.

Germany, which currently holds the rotating presidency of the group, is hoping to avoid this outcome. But reports in the German media this week paint a picture of a government worried that the escalating tensions between the United States and the European Union on trade, climate, financial regulation, defense, and security could result in an explosive summit that could lead to the G20’s demise.

German Chancellor Angela Merkel does not want to be remembered as the leader who hosted the last G20. Yet the fate of this summit does not rest in her hands alone: All eyes will be on Donald Trump to see if he comes to Hamburg feeling conciliatory or belligerent. If his recent domestic behavior is any indication, it is likely to be the latter.

An “Arena”, Not a “Community”

The reason for the G20’s designation as the world’s main economic council a decade ago is now being challenged by the very country that pushed for it. The George W. Bush administration in 2008, along with other leaders at the time, wanted a coordinated global response to the financial crisis. The G20 agreed to launch economic stimulus programs in order to steer the world out of danger. They also agreed on regulations to avoid bank collapses, and to eradicate tax evasion.

However, all of these collaborations are now under threat. In May, Trump’s national security adviser H.R. McMaster and his economic adviser Gary Cohn wrote an op-ed for the Wall Street Journal in which they outlined a new vision of the global economy. This vision is not one of a “global community” as envisioned by bodies such as the G20, but of an “arena” in which countries compete. Trump and the Republican-controlled US Congress have already set about dismantling the legislation put in place in 2008 and 2009 to avoid a repeat of the economic crisis.

Washington Turns its Back

Trump’s pronouncements on trade have been as perplexing as they have been hostile. During a visit to NATO in May, he called the Germans “bad, very bad” for their trade surplus with the US. The Trump administration is considering introducing a “border adjustment tax” on imports of German products.

The administration has also threatened to take action against the EU’s long-standing ban on imports of hormone-treated meat from the US, threatening to put tariffs on imports from a number of European products unless Brussels agrees to end the ban. A conflict over steel imports remains equally beguiling, with some speculating that the administration may even announce import tariffs on steel during the Hamburg summit as a gesture of intimidation.

Any of these moves would result in retaliatory action from the EU and other partners such as China and India. They would create an atmosphere of hostility which could make the G20 unworkable as a body. If the free-trade goals of the group are going to be torn up by the very country that initiated it, its continued existence would be in doubt.

Further, whatever its practical implications, the symbolic message of Trump’s decision to pull out of the Paris climate accord is that the US is no longer interested in international cooperation. The climate agreement may be able to survive without the US, but the G20 cannot.

Add in disagreements over sanctions against Iran, the civil war in Syria, North Korean nuclear activity, Russian gas pipelines, and immigration, and you have a recipe for disaster in Hamburg.

European Response

Should the US president come to Germany ready for war, European leaders have two options: they can fight back, or they can placate Trump in an effort to save the G20.

Public polling of Europeans shows they are not in a mood for conciliation. A recent Pew research study shows approval ratings for America throughout the world have plunged to unprecedented lows since Trump took office.

In Europe, opinions are particularly stark. Three-quarters of the world has little or no confidence in Trump. Only 6 percent of Germans think Trump is qualified to be US president, and 91 percent see him as arrogant. Trump’s planned meeting with Russian President Vladimir Putin on the sidelines of the Hamburg summit will not help impressions that the US president is working against the EU.

Earlier this week, Guy Verhofstadt, the leader of the group of Liberals in the European Parliament and a former prime minister of Belgium, wrote an op-ed calling for Europe to show a united front in the face of any Trump bullying in Hamburg. But he noted that such unity will be challenging, as there is a stark East-West divide in Europe on the subject. Western continental Europe is much more eager to cast off American dominance than Eastern Europe or the United Kingdom, with the former still viewing Washington as the more reliable partner than Paris or Berlin.

Merkel’s tightrope walk this week will be to maintain European unity while giving the fewest concessions possible in order to keep the US president calm. The goal is to save the G20 as an organization of cooperation. But there are many in Europe and elsewhere who believe that if saving the group means giving in to Trump’s unpredictable demands, that is not a price worth paying.

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The consecutive G20 presidencies of China and Germany provide a chance 
to further deepen bilateral cooperation. But while there is agreement on some issues, others like tax havens and debt-financed growth may prove thorny.

© REUTERS/Aly Song

Preparations for the G20 summit in Hangzhou in early September are in full swing, while the German G20 chairmanship and the July 2017 summit in Hamburg are not far off. The focus areas of the Chinese G20 agenda have already emerged: Among other things, Beijing is paying particular attention to infrastructure investment and the development of a green financial system. With regard to Germany’s plans, less is known. Against the backdrop of the discussion triggered by the Panama Papers, Chancellor Angela Merkel underlined that the fight against tax havens will play an important role during Germany’s G20 presidency. Meanwhile, Finance Minister Wolfgang Schäuble’s forceful criticism of debt-fueled growth in the context of a G20 meeting in Shanghai earlier this year suggests that dealing with rampant indebtedness in many parts of the world could also be high on Germany’s G20 agenda.

No Success Without Standards

Based on the success of China’s development strategy over the last three decades, Beijing considers infrastructure investment a crucial tool to unleash development potential and stimulate growth in the framework of the G20. The G20 already initiated a Global Infrastructure Investment Initiative at the 2014 summit in Brisbane. Yet it was China’s establishment of the Asian Infrastructure Investment Bank (AIIB) that drew global attention to infrastructure gaps hindering development.

When it comes to debt-financed infrastructure investment, the German government is generally hesitant. Yet there is no doubt that it is also interested in tapping new sources of growth. By joining the AIIB – Germany actually holds the largest voting share among non-regional members – Berlin has already demonstrated that it will contribute to closing the global infrastructure gap. To further support China in its efforts to strengthen global infrastructure connectivity, Germany could build on its experiences with the infrastructure investment programs of its Kreditanstalt für Wiederaufbau (KfW), the European Investment Bank, and the European Bank for Reconstruction and Development to promote the development of socially-, environmentally-, and financially-sustainable lending standards within China’s initiatives.

Green Finance

There may also be opportunities for cooperation between China and Germany in the development of a green financial system. Green finance aims to promote environmentally friendly projects through the creation of special financial products, setting the course for more sustainable growth by factoring environmental impact into credit-granting decisions. China has taken up the cause of “greening” its financial system to avoid environmental degradation becoming the collateral damage of its rapid economic growth. It became clear that Beijing places a high priority on greening its financial system in 2014 when China’s central bank collaborated with the United Nations Environment Program to set up a Green Finance Task Force. Consistent with China’s increasing integration into the global financial architecture, Beijing now also wants to promote green finance within the G20 and has established a Green Finance Study Group within the G20’s finance track.

When it comes to greening the global financial system, Germany may not be as suitable a partner as the United Kingdom, which is backing this trend in an effort to provide fresh impetus to its own financial industry. Nevertheless, Germany also has something to offer in this regard, given that green finance plays a growing role in the country’s development cooperation. In this context, the Global Climate Partnership Fund, initiated by the Federal Ministry for the Environment and promoting green growth in emerging markets, is particularly worth mentioning. It is also in Germany’s interest to encourage environmentally friendly growth in China since this would open up new business opportunities for German producers of environmental technology.

Hands Off of China’s Princelings

In the fight against tax havens, German-Chinese cooperation will prove much harder. Not even two weeks after the first reports on the Panama Papers were published, the G20 again put the topic on its agenda. During their April meeting in Washington, the G20 finance ministers and central bank governors announced that they would consider “defensive measures” against uncooperative countries, and reiterated their call for financial transparency with regard to the beneficial ownership of legal persons. Germany, along with France, the UK, Italy, and Spain had been the driving force behind this initiative.

The Chinese government needs to be given credit for having been flexible enough to consider the European proposal on short notice. Besides, it is beyond question that China has a great interest in putting a stop to tax evasion in principle given that the country is facing growing holes in its state coffers. Beijing has thus played an active part in the OECD-led project on the fight against base erosion and profit shifting of multinational companies (BEPS). Moreover, the Chinese Communist Party will also link its ongoing anti-corruption campaign, the largest in China’s history, with G20 efforts to halt illicit capital outflows.

Nevertheless, offshore companies aimed at concealing personal wealth remain a highly sensitive topic in China. In many cases, family members of the ruling elites try to hide their money behind shell companies. In order to protect these so-called princelings and prevent their secret dealings from casting a poor light on the Communist Party, Beijing does not allow any reporting on dubious offshore companies. The government also censored all media coverage of the Panama Papers, which revealed, among other things, that the brother-in-law of Party Chairman and State President Xi Jinping temporarily served as director of three offshore companies in the British Virgin Islands. That almost nobody in China wants to touch this topic explains why China has suspended the anti-corruption task force of the B20 – the business outreach group within the G20 process. In recent years, the group had developed proposals on how to increase the transparency of offshore financial arrangements. According to media reports, no Chinese company was willing to lead the task force.

If the German government wants to focus on the fight against tax havens during its G20 presidency, it can hardly count on Beijing’s wholehearted support.

Beijing Fails to Walk the Walk

German-Chinese cooperation will also hit obstacles in the fight against the rampant indebtedness of both the public and the private sector in many parts of the world. Within the G20, Germany has long been the fiercest critic of debt-financed growth. In the run-up to the February meeting of the G20’s finance ministers and central bank governors in Shanghai, Schäuble was particularly outspoken, stressing that “the debt-financed growth model has reached its limits” and that “talking about further stimulus just distracts from the real tasks at hand.” To lay the foundations for sustainable economic growth, he said, structural reforms and debt reduction were needed, rather than loose fiscal and monetary policy. In this context, Schäuble explicitly praised China for having made structural reform a top priority in this year’s G20 agenda. However, upon a closer look at China’s position, it quickly becomes evident that Beijing only appears to be a suitable partner on paper.

In 2013 the Chinese Communist Party announced a comprehensive reform package meant to lay the foundations for a growth model based primarily on the growth drivers of domestic consumption – innovation and the services sector. Yet in most areas reforms have either stalled or never even left the gate. The main reason for this lack of progress is that the government has time and again unleashed stimulus measures to fight the economic downturn and halt rising unemployment in an effort to prevent sinking growth rates from turning into a political problem. While in early 2016 the Chinese leadership initiated another push for “supply-side reforms,” there were no signs that China would be able to solve its debt problem quickly; in fact, debt continues to grow much faster than the economy. Before the outbreak of the global financial crisis, China’s total debt only amounted to about 150 percent of GDP. Yet in the first quarter of 2016, it had reached around 240 percent of GDP – a dangerous level considering the country’s stage of development. No turnaround is in sight, and the government’s efforts to contain rising financial risks have so far remained lukewarm.

If Berlin wants to make use of its G20 presidency to constrain debt-financed growth and shape the global debate on structural reforms, it should start looking for other partners.

Read more in the Berlin Policy Journal App – July/August 2016 issue.

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