China's Xi at G20 says world economy at risk, warns against protectionism

The global economy is being threatened by rising protectionism and risks from highly leveraged financial markets, Chinese President Xi Jinping said at the open of a two-day summit of leaders from G20 nations.

His warning on Sunday followed bilateral talks with Barack Obama that the U.S. president described as "extremely productive", but which failed to bring both sides closer on thornier topics such as tensions in the South China Sea.

With the summit taking place after Britain's vote in June to exit the European Union and before the U.S. presidential election in November, observers expect G20 leaders to mount a defense of free trade and globalization and warn against isolationism.

The global economy has arrived "at a crucial juncture", Xi said, in the face of sluggish demand, volatile financial markets and feeble trade and investment.

"Growth drivers from the previous round of technological progress are gradually fading, while a new round of technological and industrial revolution has yet to gain momentum," he said.

G20 countries are set to agree in a communique at the end of the summit that all policy measures - including monetary, fiscal and structural reforms - should be used to achieve solid and sustainable economic growth, Japanese Deputy Chief Cabinet Secretary Koichi Hagiuda said.

"Commitment will be made to utilizing all three policy tools of monetary and fiscal policies and structural reforms to achieve solid, sustainable, balanced and inclusive growth," Hagiuda told reporters on the sidelines of the summit.

Xi also called on G20 countries to match their words with actions.

"We should turn the G20 group into an action team, instead of a talk shop," he said.

But some of the G20 leaders have begun drawing battle lines in disputes over issues ranging from trade and investment to tax policy and industrial overcapacity.

BATTLE LINES

On Sunday, Xi held talks with Australian Prime Minister Malcolm Turnbull and told him he hoped Australia would continue to provide a fair, transparent and predictable policy environment for foreign investors.

China was angered when Australia blocked the A$10 billion ($7.7 billion) sale of the country's biggest energy grid to Chinese bidders last month.

China has accused Australia of bowing to protectionist sentiment in blocking the bid for Ausgrid, as well as an earlier one by a China-led consortium to buy cattle company Kidman & Co.

Beijing has also criticized Australia, a staunch U.S. ally, for running surveillance flights over disputed islands in the South China Sea.

Meanwhile, European Commission President Jean-Claude Juncker said China must set up a mechanism to address its problem of industrial overcapacity, saying it was "unacceptable" the European steel industry had lost so many jobs in recent years.