1. On the occasion of the 2022 OECD Ministerial Council Meeting, we1 have assembled on 9-10 June 2022 under the leadership of Italy as MCM Chair, and with Mexico and Norway as Vice Chairs, under the theme of “The Future We Want: Better Policies for the Next Generation and a Sustainable Transition”.

2. Russia’s unjustifiable, unprovoked and illegal war of aggression against Ukraine is a flagrant violation of international law that shakes the very foundation of the international order. Any unilateral attempts to change it and redraw internationally recognised borders by force or by other means is unacceptable. Against this tense backdrop, we believe that the OECD has a greater role to play as an international organisation that can unite under our shared values. We are firmly determined to rise resolutely to various geopolitical challenges ahead to preserve and promote our shared values. We condemn Russia’s aggression against Ukraine in the strongest possible terms. We have suspended Russia’s and Belarus’ participation in OECD bodies. We call on Russia to immediately cease all hostile and provocative actions against Ukraine, withdraw all military and proxy forces from the country, and turn to good-faith diplomacy and dialogue in order to bring a peaceful end to its ongoing war as soon as possible. We call on all partners to refrain from taking export restrictions measures for agricultural products in the context of the rising food insecurity crisis, in coordination with other international partners. We stand in solidarity with Ukraine. Our priority is to help the Ukrainian people, support their democratically elected government, and protect refugees throughout this crisis. We encourage the OECD’s continuing analyses of the economic, environmental and social repercussions of the war, including the needs of women and children, and OECD proposals in support of Ukraine’s recovery and reconstruction, together with relevant international partners. In this regard, we welcome the establishment of the OECD Kyiv Office.

3. In this context, we will work toward consolidating the economic and social foundations of democracy, through realising a sustainable and inclusive growth as well as addressing disparities and inequalities. We will also step up efforts to maintain and strengthen the rules-based international economic order, while preserving our economic security and countering economic coercion. Furthermore, we will bolster our external engagement to promote adherence to OECD standards and to achieve sustainable development all over the world.

4. We want the next generation to inherit a peaceful, prosperous, sustainable and inclusive future. The OECD’s shared values, as reflected in its 60th Anniversary Vision Statement, are the basis for our like-minded action in support of a rule based international order and in pursuit of sustainable growth, while protecting our planet and reducing inequalities. We believe democracy and the rule of law, the promotion of human rights, equality, diversity and inclusion, gender equality, the market-based economic principles, an open, free and fair, and rules-based multilateral trading system, transparency and accountability of governments, and the promotion of environmental sustainability will help improve the lives and prospects of everyone – inside and outside the OECD’s membership, now and in the future. We intend to continue our successful collaboration with non-member countries. We commit to preserving the like-minded nature of the OECD in its enlargement process, and welcome the adoption of Accession Roadmaps for Brazil, Bulgaria, Croatia, Peru and Romania. We reaffirm the openness of the Organisation, the continued importance of all of our regional programmes and the strategic priority of South East Asia as identified in our Global Relations Strategy, and our commitment to the 2030 Agenda for Sustainable Development. Solid multilateral co-operation and institutions have never been more important. Recognising the challenges to the OECD’s standards and norms by emerging donors, we will reinforce our global engagement through consolidating OECD’s role as a platform for the exchange of experiences and best practices, as well as advancing its standards globally, through membership and partnerships and a sound approach to development. The war in Ukraine, the scarring effects of the pandemic and the climate emergency have critical consequences particularly for developing countries. Extreme poverty, severe food insecurity and forced displacement are intensifying. We recognise the importance of an urgent and coordinated response and of international cooperation to help developing countries manage these shocks. We are committed to supporting developing countries to achieve their development goals through policy dialogue, expert analysis, demand-driven policy support, domestic resource mobilisation and international finance – including Official Development Assistance and other official and private flows – to meet both urgent needs and longer term sustainable development priorities. We will take a positive role in measuring these international financial flows to contribute to the achievement of the SDGs.

To read the full report from the OECD Council, please click here.

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ASEAN’s success as a manufacturing hub would not have been possible without both an openness to trade and the presence of regional supply chains that favorably position Southeast Asia as an essential supplier of raw materials and key components for final assembly in China. At the same time, however, it is becoming more difficult for ASEAN to navigate the uncertainties spilling into the investment environment from three areas often outside its control: geopolitics and decoupling, deglobalization, and climate change. In this essay, Vasuki Shastry, Associate Fellow in the Asia-Pacific Programme at Chatham House, examines both the tailwind trends behind ASEAN’s success in becoming a leading region for FDI and the headwinds that threaten to slow its ascent.

To read the full report from The Hinrich Foundation, please click here.

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To read the full article from the International Monetary Fund, please click here. 

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To read the full paper, please click here.

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• 26% of world merchandise exports and 30% of merchandise imports; 
• 39% of world commercial services exports and 33% of commercial services imports; and 
• more than half of global outbound and inbound foreign direct investment (FDI).

(Trade data from World Trade Organization, extra-EU trade; FDI data from U.N. Conference on Trade and Development.) Members of Congress have an interest in examining U.S.-EU trade and investment ties, given their magnitude, scope, and implications for U.S. trade policy.

To read full report by the Congressional Research Service, please click here.

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DFC’s Roadmap for Impact (Roadmap) takes into account global development needs to establish portfolio-wide development priorities. The Roadmap identifies opportunities to increase private investment in low-income countries (LIC) and lower middle-income countries (LMIC)—targeting 60 percent of total portfolio projects in LICs, LMICs or fragile states. It also recognizes the importance of supporting projects that are significantly developmental or that target the most vulnerable populations in upper middle-income countries (UMICs). In addition, the Roadmap defines priority cross-cutting development themes and sectors, and it establishes investment goals and development metrics in order to focus DFC’s investment activities and measure our progress.

The Roadmap outlines capabilities and resources that are required to achieve these development goals, with an emphasis on enhanced coordination within DFC and across USG initiatives, departments and agencies, development finance institutions (DFIs), international financial institutions (IFIs), and other members of the development community. It also emphasizes the importance of transparency and enhanced social and environmental standards in the design and sustainable execution of DFC-supported projects in order to demonstrate that the U.S.-led model of development advances the best interests of Americans, host countries, and the planet whenever we invest.

The Roadmap does not reflect an exhaustive list of the sectors where DFC invests; rather, it focuses on sectors where DFC investments and technical assistance can have the greatest, measurable development impact over the next five years. Working closely with newly created U.S. Embassy deal teams, particularly with the Departments of State’s and Commerce’s DC Central Deal Team, as well as with DFC liaisons at U.S. Agency for International Development (USAID) missions worldwide, DFC can expand its client base and broaden the markets it serves. It will not be easy; and it will require additional resources, private capital to invest alongside, changes to processes, and patience. But DFC is committed to prioritizing the most highly developmental projects in the most underserved communities worldwide.

To download the full report, please click here.

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At the onset of COVID-19, the Bank Group took broad, decisive action in delivering a fast-track facility to help countries respond quickly to this crisis. We expect to deploy up to $160 billion in the 15 months ending June 30, 2021, through new operations and the restructuring of existing ones to help countries address the wide range of needs arising from the pandemic. This will include over $50 billion of IDA resources on grant and highly concessional terms.

By May, we reached the milestone of emergency health operations in 100 countries. Our initial projects focused on limiting the pandemic’s spread and boosting the capacity of health services. We helped countries access essential medical supplies and equipment through support for procurement and logistics, including negotiations with suppliers on their behalf. Many developing countries are dependent on imports for supplies, making them highly exposed to price fluctuations and trade restrictions. Through IFC and MIGA, we provided vital working capital and trade finance for the private sector in developing countries, particularly firms in core industries, and helped financial sectors continue lending to viable local businesses.

In March, the World Bank and IMF called for official bilateral creditors to suspend debt payments from IDA countries. In April, G20 leaders issued a historic agreement suspending official bilateral debt service payments from May 1 through the end of 2020 and called for comparable treatment by commercial creditors— a powerful example of international cooperation to help the poorest countries. Beyond immediate health concerns, the Bank Group is supporting countries as they reopen their economies, restore jobs and services, and pave the pathway to a sustainable recovery. Many of our client countries have enhanced their transparency and attractiveness to new investment with fuller disclosure of their public sector’s financial commitments. The Bank is helping the most vulnerable countries evaluate their debt sustainability and transparency, which are both essential to good development outcomes.

The Bank Group is supporting countries’ efforts to scale up their social safety nets. This includes cash transfer operations through both in-person and digital options so that governments can efficiently deliver this critical support to their most vulnerable people. We are also engaging with governments to eliminate or redirect costly and environmentally harmful fuel subsidies and reduce trade barriers for food and medical supplies.

In fiscal 2020, IBRD’s net commitments rose to $28 billion, while disbursements remained strong. IDA’s net commitments were $30.4 billion, 39 percent higher than the previous year. The 19th replenishment of IDA was approved in March, securing a three-year $82 billion financing package for the world’s 76 poorest countries. This will increase our support to countries affected by fragility, conflict, and violence (FCV) and strengthen debt transparency and sustainable borrowing practices. Over the last year, we realigned the Bank’s staff and management to drive coordinated country programs and put high-quality knowledge at the center of our operations and development policy. We are increasing our global footprint to be closer to our operations on the ground. We also strengthened our focus on Africa by creating
two Bank vice presidencies, one focusing on Western and Central Africa and the other on Eastern and Southern Africa, to take effect in fiscal 2021. I appointed four new senior leaders: Anshula Kant as Managing Director and Chief Financial Officer, Mari Pangestu as Managing Director of Development Policy and Partnerships, Hiroshi Matano as Executive Vice President of MIGA, and Axel van Trotsenburg as Managing Director of Operations on the departure of Kristalina Georgieva to head the IMF. In addition to these appointments, there were 12 vice-presidential appointments or reassignments over the last year. Together, the strong leadership team and a highly dedicated and motivated staff are striving to build the world’s most effective development institution, with a resilient and responsive business model that can help each country and region achieve better development outcomes.

At our Annual Meetings in October, we presented a new index to track learning poverty—the percentage of 10-year-olds who cannot read and understand a basic story. Reducing learning poverty will require comprehensive reforms, but the payoff—equipping children with the skills they need to succeed and achieve their potential as adults—is vital for development.

By helping countries leverage new digital technologies, we are expanding access to low-cost financial transactions, particularly for women and other vulnerable groups. Digital connectivity is one of many key steps in helping women unleash their full economic potential. The Women Entrepreneurs Finance Initiative (We-Fi), hosted by the Bank Group, works to remove regulatory and legal barriers that women face and help them gain access to the financing, markets, and networks they need to succeed. Bank operations also focus on providing women with greater agency and voice in their communities, working to ensure that girls can learn effectively and safely in schools, and promoting quality health care for mothers and children.

We help countries strengthen their private sectors, which are central to creating jobs and boosting economic growth. In fiscal 2020, IFC’s long-term finance commitments increased to $22 billion, which includes $11 billion of its own commitments and $11 billion in mobilization, commitments from private investors, and others. In addition, IFC extended $6.5 billion in short-term finance. MIGA’s commitments totaled $4 billion, with an average project size of $84 million. Looking forward, MIGA’s product line, staffing, and upstream efforts are well suited to help in the Bank Group’s COVID-19 response, including a focus on smaller projects in IDA-eligible countries and countries affected by FCV.

None of these achievements would have been possible without our staff’s hard work and successful adjustment to home-based work during the pandemic. Working around the world and at all levels, staff continued to deliver solutions to address countries’ most urgent needs. I am deeply grateful for their dedication and flexibility, especially amid these difficult circumstances.

As people in developing countries worldwide grapple with the pandemic and deep recessions, the World Bank Group remains committed to their future, providing the support and assistance they need to overcome this crisis, and achieve a sustainable and inclusive recovery.

DAVID MALPASS
President of the World Bank Group and Chairman of the Board of Executive Directors

To download the full report, please click here.

World Bank. 2020. World Bank Annual Report 2020. Washington, DC: World Bank. doi: 10.1596/978-1-4648-1619-2 . License: Creative Commons Attribution–NonCommercial–NoDerivatives 3.0 IGO (CC BY-NC-ND 3.0 IGO).

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Throughout his reign, Yongle sent his close friend, Admiral Zheng He, on seven voyages with the recently-built Ming treasure fleet to establish relations with civilisations as far west as Mogadishu and as far south as Surabaya. The admiral did indeed return with foreign dignitaries, who sealed new diplomatic connections between these distant lands, and with them came agreements for tributes and trade. China had opened to the world, and both sides enjoyed the economic benefits of the ensuing exchange of goods, technology and people.

After Yongle’s death, the voyages of the treasure fleet came to an end. Resuming the policy of the Ming’s founder, subsequent occupants of the Forbidden City imposed the haijin, a prohibition on Chinese maritime ventures. This persisted well into the Qing, China’s final imperial dynasty. By then, what maritime trade existed was almost exclusively conducted by foreign vessels limited to the port island of Shamian, a spit of land in Guangzhou. The reason was rather infamously expressed by the Qing Emperor Qianlong in a letter to Britain’s King George III, saying, “Our Celestial Empire possesses all things in prolific abundance… [and has] no need to import the manufactures of outside barbarians.”

The China of 2020 has a far less restrictive economy than anything found in the imperial era. Yet, echoes of the contrasting viewpoints of Yongle and Qianlong persist. For much of the last four decades, European business has been confident that China’s leaders were leaning heavily towards continued opening up after having emerged from an era of seclusion. Unfortunately, the last several years have challenged this confidence, with an increasing number of voices asking if China is leaning more towards Qianlong’s belief that the Middle Kingdom has no need, or desire, for what foreigners have to offer.

The reality on the ground is not so black and white. European business sees China moving in multiple directions at the same time.

For example, as noted in the European Union Chamber of Commerce in China’s European Business in China Business Confidence Survey 2020, a ‘one economy, two systems’ model has emerged. One half of China’s economy continues to open, is increasingly fair and well regulated, and very much wants European investment. For instance, while late in the game, the lifting of equity caps in the automotive sector has led to meaningful opportunities for European manufacturers and their suppliers, several of which have either increased their shareholdings or are aiming to take full control of their long-held joint ventures.

However, this more market-driven half of the economy also includes saturated sectors that China seems to have finally unlocked purely to perpetuate its now familiar narrative that it will open its doors wider and wider to foreign investors. The lifting of equity caps for foreign investment in the financial services sectors serves as a key example in this respect. China’s closed-off banking sector allowed domestic financiers to fully saturate the entire market without the challenge of outside competition. The eventual removal of the direct barriers to foreign banks was then hailed in Chinese state media as a monumental step towards China opening its economy. However, the fact that the reform took place so late in the game made it more akin to letting foreign investors onto a railway platform only after the train had long since departed.

In a market already dominated by state-run banks—four of which are the largest in the world—only a few remaining niches, like cross-border services, still have space for European banks. After entering those niches, European banks are then confronted by secondary barriers, like restricted access to licences and complex administrative approvals, meaning that most cannot even catch the crumbs from the table. European bankers project that the already pitiful foreign share of less than two per cent of the market will shrink. Meanwhile, Chinese banks are feasting on Europe’s open banking market.

The other, state-driven half of the economy sees China still nursing its national champions and stateowned enterprises (SOEs) that have largely uncontested access to a fifth of the world’s consumers, producers, depositors and innovators. China’s leaders reaffirmed its plan to enhance the role of its SOEs as recently as July 2020. China currently has 97 behemoths run at the central level by the State-owned Assets Supervision and Administration Commission (SASAC), and another 130,000 SOEs run at the provincial and local levels.

Originally, the foundational and primary sectors of the economy, as well as anything that could be deemed ‘strategic’ in the government’s broad definition of the term, were off limits, including energy, utilities, resource extraction, refining, steel production and rail. Worryingly, there now seems to be a growing list of sectors that either restrict foreign investment, or in which support is provided to China’s national champions to the extent that it squeezes out any potential European competition.

This is particularly apparent in the industries promoted in the China Manufacturing 2025 plan and similar national goals. Renewables, telecommunications, internet and high technology industries, along with other key sectors projected to drive the most growth over the coming decades, are tightening up to foreign investors. European companies have found themselves only being permitted into these areas to perform specialist roles and provide inputs where Chinese expertise is lacking.

The enduring and growing challenges facing European companies in this half of the economy are depleting business sentiment. Meanwhile, as China’s indigenous companies catch up to and even surpass European firms in some areas, many European business leaders are starting to wonder if Jeffrey Immhelt, former CEO of General Electric, was right a decade ago when he said, “I am not sure that in the end [China] wants any of us to win, or any of us to be successful.”

In the wake of the COVID-19 outbreak, new obstacles have emerged that have left Europeans feeling decreasingly welcome in China. While Chinese nationals have been able to get to Europe for essential business travel and work/residency, a large portion of China’s European business community—many of them long-time, tax-paying residents—have been largely prevented from returning, even from places within China’s borders like Hong Kong. Furthermore, instances of discrimination directed at foreigners in China went ignored by Chinese officials at best, and were outright denied at worst.

European Chamber members cannot help wondering if these actions and inactions are indicative of a broader mindset that while foreign capital and technology are desired in China, foreigners themselves are not.

These various directions that China is moving in indicate a huge difference in how the concept of ‘openness’ is understood. As an open economy, the EU has embraced the idea that market access is taken as granted through multilateral institutions like the World Trade Organization (WTO), and bilateral ones like investment agreements. Since EU-China negotiations on the Comprehensive Agreement on Investment (CAI) began in 2013, the EU has completed trade and investment agreements with several dozen other markets. But the China of 2020 seems to buy into a different way of thinking: market access is not seen as a right, but instead a privilege that is either extended to or removed from certain areas, depending on whichever part of the economy China’s leaders want foreign investment to flow to at any given time.

Not only does this understanding clash with the rules-based economic order to which China voluntarily acceded, it also drags down business sentiment.

This is to China’s detriment, as the potential of the market remains huge – China’s development trajectory has been comparable to that of Japan and South Korea in the decades following their market reforms. As opposed to the growing narrative of foreign companies voluntarily ‘decoupling’ from China, European firms are actually eager to deepen their positions and compete for market share.

The European Chamber is frequently asked by the European Commission and member-state governments if Europe should seek deeper engagement with China, with the ultimate goal of China establishing a truly open and competitive market economy; or if it should accept that the state-driven half of the economy will eventually prevail. The answer is increasingly clear: build a toolkit that will work either way.

EU investment screening mechanisms directed at state-backed capital will not need to be employed if China truly liberalises its economy, but will be in place to protect against market distortions caused by SOEs if China chooses not to. Similarly, the International Procurement Instrument will have no effect on China if the country opens its procurement market, while protecting against anti-competitive bids from China’s national champions if it does not. Leveraging trade and investment deals with third-market partners to counter market distortions resulting from competition from China’s artificially-boosted national champions will be unnecessary if Beijing aligns with the rules-based economic system, but such steps would be needed to counter damage to European players in those markets should nothing change.

Meanwhile, both sides must commit to concluding a binding and robust CAI that brings the EU and China as close to a reciprocal trade and investment environment as possible, and provides investor protection on both sides. This would not only bear clear tangible benefits, but also demonstrate that deeper engagement is still the best way forward, countering the growing international narrative that playing hardball in a world of zero-sum games is the only viable option.

Realising its stated reform agenda and bilateral and multilateral commitments would also resolve many of the contradictions that see China’s economy perpetually pulled in different directions: the tensions of one economy, two systems; the mismatch between market potential and market access; the conflict between business and politics; and the gulf between rhetoric and reality.

To download the full position paper, please click here.

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