Satyajit Das: China sets out on long march back to self-reliance as trade gets rough

Midweek View: The country has become increasingly resentful about the destruction of the value of its savings

In a world where economic nationalism is reasserting itself, and as countries battle for survival against a backdrop of low growth, the Chinese mercantilist model is increasingly problematic.

China's policy position is driven by the economic problems of its major trading partners. Given their lower levels of growth, exports to Europe and America can no longer power the Chinese economy. China will have to rely on domestic developments to drive the strong growth necessary to preserve social stability and the rule of the Communist party. An internal focus would assist China in the rebalancing of its economy from one driven by exports to one with higher consumption.

China's economic redirection may be driven by its enormous loss of wealth from engagement with the West. Before the financial crisis, the US purchased real goods and services from China, financing them with dollar-denominated IOUs with low rates of interest. China's $3.4 trillion (£2.2 trillion) in foreign exchange reserves are invested primarily in government bonds and other high- quality securities denominated in US dollars, euros and yen.

These investments have lost value, through increasing default risk (as the issuer's ratings are downgraded) and deliberate policies to engineer falls in the value of the foreign currency against the renminbi. Attempts by the Chinese to liquidate reserve assets would result in sharp falls in the value of the securities and a rise in the renminbi against the relevant currencies, with large losses.

China has become increasingly resentful about the destruction of the value of its savings. In an article in the Financial Times just a year ago, Jin Liqun, chairman of the supervisory board at the China Investment Corporation, the nation's sovereign wealth fund, responded to criticism of China's response to the European debt crisis as follows: "From the outset of the crisis, China has responded positively and firmly to Europe's appeal for support. But it should be received as an important and responsible stakeholder, not as an outside creditor relegated to lower levels of seniority in moments of urgency. It should be treated equally with the European Central Bank in the event of any debt restructuring."

Reducing international engagement would allow China to write down its investment over time. This would also minimise the need for further investment to protect the value of existing holdings, freeing resources for internal requirements.

As in any divorce, both partners – China and its major trading partners – increasingly recognise the lack of mutual benefit in continuing existing arrangements.

At the July 2012 G20 meeting in Mexico, China made it clear that it would not initiate the type and scale of bank lending that it unleashed after the initial phase of the financial crisis in order to boost Chinese and global growth. With the country unwilling to take steps to become the consumer of last resort or open its markets to foreign businesses, developed countries are increasing critical of Chinese policies.

China sees diminishing gains for engagement with external parties other than on its own terms. It resents external pressures on its economic policies, currency value, trading practices, political system, foreign policy and human rights record. It resents the hypocrisy of developed nations in dealing with a great power.

Chinese history is shaped by successive humiliations in dealings with the West. Economic disengagement is dictated, in part, by fault lines in the relationship between China and its trading partners.

China has shifted its priority to food and energy security to sustain its development. It is buying food and energy independence through targeted investment in foreign suppliers. In some cases, these investments also secure external markets for Chinese goods and services.

For China, a reversal of a policy represents a return to traditional economic self-reliance and a limited interest in trade. As Robert Hart, a British trade commissioner in 19th century China, wrote: "[The] Chinese have the best food in the world, rice; the best drink, tea; and the best clothing, cotton, silk, fur. Possessing these staples and their innumerable native adjuncts, they do not need to buy a penny's worth elsewhere." Engaging with gweilos (a Cantonese term meaning foreigners or foreign devils) is the exception not the norm in Chinese history.

Satyajit Das is a former banker and author of 'Extreme Money' and 'Traders, Guns & Money'

PROMOTED VIDEO
News
Wayne’s estate faces a claim for alleged copyright breaches
John Wayne's heirs duke it out with university over use of the late film star's nickname
News
peopleIndian actress known as the 'Grand Old Lady of Bollywood' was 102
News
business
News
Mick Jagger performing at Glastonbury
people
Life and Style
beautyBelgian fan lands L'Oreal campaign after being spotted at World Cup
Sport
Germany's Andre Greipel crosses the finish line to win the sixth stage of the Tour de France cycling race over 194 kilometers (120.5 miles) with start in Arras and finish in Reims, France
tour de franceGerman champion achieves sixth Tour stage win in Reims
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Application Support - Unix, Linux, Windows, Bash, Perl, Python

£55000 per annum: Harrington Starr: An established leader in the Trading Syste...

Associate CXL Consultant

£40000 - £60000 per annum + BONUS + BENEFITS: Harrington Starr: CXL, Triple Po...

Project Manager - ETRM/CTRM

£70000 - £90000 per annum + Job Satisfaction: Harrington Starr: Project Manage...

JQuery Developer (JQuery, C#, front-end, JQuery, UI, Tomcat)

£40000 - £45000 per annum: Harrington Starr: A Global Financial Service Organ...

Day In a Page

The true Gaza back-story that the Israelis aren’t telling this week

The true Gaza back-story that the Israelis aren’t telling this week

A future Palestine state will have no borders and be an enclave within Israel, surrounded on all sides by Israeli-held territory, says Robert Fisk
A History of the First World War in 100 Moments: The German people demand an end to the fighting

A History of the First World War in 100 Moments

The German people demand an end to the fighting
New play by Oscar Wilde's grandson reveals what the Irish wit said at his trials

New play reveals what Oscar Wilde said at trials

For a century, what Wilde actually said at his trials was a mystery. But the recent discovery of shorthand notes changed that. Now his grandson Merlin Holland has turned them into a play
Can scientists save the world's sea life from

Can scientists save our sea life?

By the end of the century, the only living things left in our oceans could be plankton and jellyfish. Alex Renton meets the scientists who are trying to turn the tide
Richard III, Trafalgar Studios, review: Martin Freeman gives highly intelligent performance

Richard III review

Martin Freeman’s psychotic monarch is big on mockery but wanting in malice
Hollywood targets Asian audiences as US films enjoy record-breaking run at Chinese box office

Hollywood targets Asian audiences

The world's second biggest movie market is fast becoming the Hollywood studios' most crucial
Grindr founder Joel Simkhai: 'I've found love on my dating app - and my mum keeps trying to hook me up!'

Grindr founder Joel Simkhai: 'I've found love on my dating app'

Five years on from its launch and Grindr is the world's most popular dating app for gay men. Its founder Joel Simkhai answers his critics, describes his isolation as a child
Autocorrect has its uses but it can go rogue with embarrassing results - so is it time to ditch it?

Is it time to ditch autocorrect?

Matthew J X Malady persuaded friends to message manually instead, but failed to factor in fat fingers and drunk texting
10 best girls' summer dresses

Frock chick: 10 best girls' summer dresses

Get them ready for the holidays with these cool and pretty options 
Westminster’s dark secret: Adultery, homosexuality, sadomasochism and abuse of children were all seemingly lumped together

Westminster’s dark secret

Adultery, homosexuality, sadomasochism and abuse of children were all seemingly lumped together
A History of the First World War in 100 Moments: Dulce et decorum est - a life cut short for a poet whose work achieved immortality

A History of the First World War in 100 Moments

Dulce et decorum est: a life cut short for a poet whose work achieved immortality
Google tells popular music website to censor album cover art in 'sexually explicit content' ban

Naked censorship?

The strange case of Google, the music website and the nudity take-down requests
Howzat! 8 best cricket bats

Howzat! 8 best cricket bats

As England take on India at Trent Bridge, here is our pick of the high-performing bats to help you up your run-count this summer 
Brazil vs Germany World Cup 2014 comment: David Luiz falls from leader figure to symbol of national humiliation

David Luiz falls from leader figure to symbol of national humiliation

Captain appears to give up as shocking 7-1 World Cup semi-final defeat threatens ramifications in Brazil