You can do yourself an injury throwing your weight around

The Chinese boycott of the IMF-World Bank meeting in Tokyo in protest over the disputed Diaoyu islets was unjustified and childish

PUBLISHED : Friday, 12 October, 2012, 12:00am
UPDATED : Monday, 30 May, 2016, 5:00pm

It wasn't meant to be like this.

The International Monetary Fund-World Bank meeting in Tokyo this week was supposed to be a triumph for China.

Originally this was to have been the occasion on which China stepped up to take its rightful place at the top table of international finance as a major shareholder - and power-broker - in the two institutions.

Actually, negotiations over governance reform have taken much longer than planned.

And in the event China's finance minister, central bank governor and state commercial bank bosses didn't even turn up in Tokyo; ordered by Beijing to stay away in protest at Japan's assertion of sovereignty over the disputed Senkaku/Diaoyu islets in the East China Sea.

To the rest of the world the no-show looks childish. Plenty of other countries have long-running territorial disputes - Britain and Spain over Gibraltar, for example - but that doesn't stop them sitting down together to talk over economic affairs like grown-ups.

Certainly a silly spat over five uninhabitable rocks can hardly justify a boycott of one of the international community's most important economic meetings by the senior financial officials of the world's second largest economy.

Admittedly, the meeting wasn't likely to achieve much even with a full Chinese presence. But without China's top officials, it is certain to fail.

And the most ridiculous thing is that it is China's standing and Beijing's intention to play a greater role in designing a new international financial architecture that will suffer the greatest damage.

Unfortunately, there are indications we are going to see more of this sort of self-defeating petulance over the coming months and years.

The expected elevation to the Politburo of the policy wonk tipped as China's new foreign policy supremo hints that Beijing's new leaders are planning to take a more assertive international stance under the next generation of leaders.

And it is becoming clear Beijing is increasingly prepared to use its new-found economic heft to back that stance.

This week the government announced it has set up a new department of international economics under the aegis of the foreign ministry.

In the past economic diplomacy has officially been the province of the finance and commerce ministries. Like other countries, China nominated its finance ministry and central bank to take the lead in international financial negotiations, while the commerce ministry headed up trade talks.

Now, by bringing economic relations under the roof of the foreign ministry Beijing is signalling it is prepared to subordinate its international economic agenda to its foreign policy goals, effectively using its global economic heft in an attempt to further its narrow territorial aims.

It's an approach that will do more harm than good. This column has pointed out before how Chinese calls for trade sanctions against Japan and demands that Beijing dump its holdings of Japanese government bonds are likely to backfire.

But the damage will not stop there. This week the media have been full of reports about how sales of Japanese cars have plunged in China as a result of the East China Sea dispute.

What most have failed to mention, however, is that the vast majority of those cars are manufactured in China from Chinese-made components. As a result it is Chinese jobs that are now in jeopardy.

Beijing's stance is also set to affect direct investment flows as the strength of the yen encourages Japanese companies to invest more capital in facilities abroad.

As the chart below shows, last year Japan's combined direct investments in Indonesia, Malaysia, the Philippines and Thailand overtook its investments in China for the first time.

With Japan's investments in South East Asia now growing far faster than its commitments to China, the Senkaku/Diaoyu dispute is only going to accelerate the shift.

As IMF boss Christine Lagarde said yesterday about the Chinese officials' no-show in Tokyo: "They lose out by not attending the meeting."

If Beijing goes ahead and pursues this new policy of subordinating its economic and financial interests to its regional foreign policy obsessions, China will only go on to suffer far greater losses in the future.