At APEC summit, a sense that all is not well

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As the financial leaders of the 21 nations bound by the Pacific gathered to talk about growth, it was hard to avoid the thought that all is not well, even in the region that has long been the world's most buoyant.

Anxieties about the fragility of the global economy have damaged commodity prices and stoked investor worries. China this week reported 7.3-per-cent quarterly growth, slightly below its 7.5-per-cent target, while global growth forecasts have been slashed eight times since July 2012. Ebola fears alone could exact a $32.6-billion toll by next year, the World Bank now warns.

"Global demand is slowing. And it is going to be something that we as a group of countries are going to need to pay particular attention to," warned Sarah Bloom Raskin, the U.S. deputy secretary of the Treasury, in Beijing Wednesday, at a summit of Asia-Pacific Economic Co-operation finance ministers.

But the potential solutions remained vague, with promises to share ways governments can better link hands with companies to build infrastructure, through so-called private-public partnerships, and to provide more support to small and medium businesses.

"Is that exciting, sexy, new and concrete? I wouldn't say so, particularly. It's sort of a continuing story," Alan Bollard, APEC's executive director, said in an interview.

It was an acknowledgment of the difficulties facing financial leadership as countries seek ways to propel growth with interest rates that can't go any lower.

"You can only do so much through monetary policy," Mr. Bollard said.

Decision-makers are now left "to do the hard stuff" to reshape fiscal policies and address structural problems, in labour markets and otherwise.

The meetings were held at the Diaoyutai State Guesthouse, an ancient neighbourhood of lakes and trees that Mao Zedong turned into an exquisitely manicured 72-hectare estate. It has hosted some of China's most important diplomatic encounters – Richard Nixon stayed there in 1972, and its guest list has included Kim Il Sung, Nikita Khrushchev and George H.W. Bush.

Wednesday's meeting offered something less headline-grabbing. The finance ministers continued a conversation on infrastructure launched last year at APEC talks in Indonesia. (Similar talks have been held at the G20 forum, which unlike APEC, has binding mechanisms that give teeth to commitments made there.)

Building new roads, bridges and rail lines can exacerbate debt among governments that have already spent heavily in the years since the financial crisis. But it can also lay the framework for future growth, which is why it is being heavily pursued by APEC finance leaders.

"Infrastructure plays an important role in unleashing the potential of economic growth," said Chinese finance minister Lou Jiwei.

Using private spending through PPP arrangements can accomplish that goal without adding to debt burdens. To do that, they agreed on the need for better conditions for private investment, whether that means creating standardized contracts across countries, enabling tolling on roads or drafting polices that encourage the practice.

The conversation on infrastructure has been driven in part by China which, as APEC host, is acting with more than a hint of self-interest. From 1992-2011, China spent 8.5 per cent of its GDP on infrastructure, more than three times the U.S. or Europe.

It has been a major spender outside its borders, too. It's the top foreign investor in African infrastructure, and is building high-speed rail lines in Thailand, Serbia, Hungary, Saudi Arabia and Russia. It's launching its own Asian Infrastructure Investment Bank, against the wishes of the U.S. and Japan (whose views on the matter were cut off by a Chinese moderator at a press conference Wednesday).

China has in many ways become the world's infrastructure champion. Is it any surprise it wants to find more ways to keep building in more countries? It's also eager to use the public-private model inside its own borders, as a way to instil better capital discipline. Fully 85 per cent of Chinese infrastructure is paid for by its government; in Australia, it's less than half.

But China's experience could benefit other nations, too, Mr. Bollard argued. "They have lessons to offer and finance available," he said.

One of the problems facing Asian nations is how to fill "the gap that was opened up as some of the Europeans, particularly German and French banks, pulled back out of the region after the great financial crisis."

Canada, for its part, has little objection to talking about ways companies can build infrastructure. Finance minister Joe Oliver noted a federal requirement that any project submitted to the Building Canada Fund be screened for its potential to use public-private partnerships.

"We see the advantage of working with other countries to create best practices to share knowledge to communicate," he said in Beijing this week. "We are supportive of China's initiative, and we'd like to be a helpful partner in that regard."