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G-20 leadership to strengthen China's international profile, if it can overcome reputational issues

China's presidency of the Group of Twenty (G-20) has offered the country a unique opportunity to strengthen its international profile and work its way towards becoming a recognized superpower.

As leader of the international body in 2016, China will host a meeting of G-20 finance ministers and central bankers in Chengdu on June 22-23, followed by September's G-20 summit in Hangzhou. It is the second time China has led the group of the world's most powerful economies—its first presidency was in 2005—but this year is the nation's first time since the body was elevated to involve G-20 leaders, according to the Institute of International Finance (IIF).

Portrait signets of G20 leaders who attended in 2015 are exhibited on June 19, 2016 in Hangzhou, Zhejiang. The signets of 2015 G20 leaders portraits were exhibited in Hangzhou to welcome the 2016 G20 Hangzhou Summit which would be held in September
Visual China Group | Getty Images
Portrait signets of G20 leaders who attended in 2015 are exhibited on June 19, 2016 in Hangzhou, Zhejiang. The signets of 2015 G20 leaders portraits were exhibited in Hangzhou to welcome the 2016 G20 Hangzhou Summit which would be held in September

Being the world's second-largest economy and the largest trading nation, the country clearly deserves a place at the head table of the global financial system but a range of concerns, spanning China's foreign policy to its stumbling economy, have many worried about the country.

Strategists often cite initiatives such as the Asian Infrastructure Investment Bank (AIIB), seen as a counter to Western-oriented lenders such as the World Bank, and the One Belt One Road (OBOR), a program that aims to promote Chinese trade across three continents, as common examples of Chinese self-interest. They argue that these programs serve as mouthpieces for Chinese policy in a way that conflict with cooperative global institutions such as the G-20.

But IIF chief economist Charles Collyns pointed to the IMF's decision to include the renminbi in its Special Drawing Rights (SDRs) as proof that China wanted to be a team player.

"My sense is that these steps have helped to cement China's commitment to be a constructive player on the international economic stage, rather than drifting into unilateralism," he told CNBC in an e-mail. "A good demonstration of this commitment has been China's recent efforts to ensure that its currency is managed in a stable way that does not threaten to be disruptive to global financial conditions."

China had its own set of priorities as well as its shared commitment to a global system, but it could manage these priorities in ways that reinforced rather than conflicted with the multilateral system, Collyns added.

What China can do to boost sentiment

Pressing ahead with long-awaited structural reforms could help Beijing gain credibility and meet a key goal for its G-20 year, which is to build an innovative, invigorated, interconnected and inclusive world economy, as President Xi Jinping announced at the end of 2015.

"One concrete thing that China can do to set a good example and create a better environment for success is to pursue its own economic reforms," said The Lowy Institute for International Policy in a May report, adding that domestic reform linked to the global agenda could help China achieve Xi's aims.

In particular, the report flagged opening up the services sector to foreign trade and investment as a vital change.

In June, China's Cabinet said certain sectors, including telecommunications, airports as well as oil and gas exploration, would be further liberalized, after data showed investment by private firms slowed to a record low in the January-May period. Policies like those could set a good example in China's G-20 host year by reaffirming an open trading and investment system at a time of stumbling global growth and rising voices of protectionism around the world, the Lowy Institute said.

Another way China could cement its leadership may be in the realm of monetary reform.

Beijing could play a key role in establishing SDRs as the leading global reserve currency, something the world's economy badly needed, José Antonio Ocampo, former Colombian finance minister and Columbia University professor, wrote in a Project Syndicate editorial on July 8.

Using SDRs entailed numerous advantages, according to Ocampo, including allowing all countries to enjoy profits brought about by money creation, helping the IMF finance its programs, as well as supporting economic development.

"China's G20 leadership could be the impetus the group needs to initiate this shift," he said. "Zhou Xiaochuan, Governor of the People's Bank of China, was among the first to question the dollar's role, some seven years ago, and China has been working steadily to internationalize the renminbi."

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