2

China’s Chance to Lead on Development

BEIJING – In September, China will host the G20 meeting of world leaders for the first time. It could not have chosen a more opportune moment to assume a leadership role. Chinese President Xi Jinping should seize the occasion to push China’s ambitious development agenda globally. Specifically, Xi should make the case that development done right benefits everyone, and he should launch discussions on a multilateral investment agreement to be developed in the next year.

This is an achievable goal for the summit: the G20 has a record of relative success in coordinating multilateral efforts, such as in its response to the 2008 global financial crisis. Moreover, the ingredients of successful development are very well known. They include constant technological improvement, which is critical for sustained growth and employment; a focus on maximizing human and physical capital; and infrastructure investments geared toward reducing transaction costs and increasing efficiency.

We also know the current gaps that exist in development. Developing countries today are constrained by low levels of human and financial capital, and by low reserves of or access to foreign exchange, which limits their ability to import the raw materials and equipment needed to ascend global value chains.

The best way to close the gaps in human and financial capital, and to increase access to foreign exchange, is through foreign direct investment. FDI should not be difficult to attract, because the potential returns should be higher in developing countries, where capital is scarce relative to labor.