'If the economic policies of a developing country favour multinationals over the interests of its own people, it will be more vulnerable to the volatility of the international financial market - which will eventually result in domestic political turmoil.'

Fan Gang,

National Economic Research Institute

OUR EDITORIAL PAGES yesterday featured a bit of a gang-up (pun intended) on proponents of globalisation. Take that, Washington! We have our own way and it is a better-considered one than yours. We are not about to give your multinationals control over China's economy.

It is an understandable and laudable sentiment but it faces one difficulty. The foreigners seem to be taking over anyway, both in ownership of industries and in dictating the price at which they will sell their goods abroad.

The first chart shows you that foreign-invested enterprises now account for the lion's share of the mainland's exports, up from 40 per cent of the total seven years ago to 57 per cent now, and the figure is rising steadily.

I also have in my hands a recent Conference Board study of industrial output in the mainland between 1995 and 2002 that found foreign-invested firms showed an average annual output growth of 28 per cent over the period. In particular, wholly owned foreign firms, as opposed to joint ventures, registered an annual 49 per cent growth rate.

In contrast, state-owned enterprises and collectives managed an average annual output growth of only 3 per cent.

The second chart shows you the pricing conundrum that the mainland now faces. The red line represents the year-on-year rate of inflation in the corporate goods price index, decidedly high at 9.5 per cent and well above inflation on the consumer price index.

There is not much Beijing can do about it. It chose to keep the yuan's exchange rate fixed against the US dollar, and the dollar-denominated prices of raw materials and components needed by the mainland's industries then rose when the dollar fell against other world currencies. Beijing inflicted this headache on itself.

The blue line represents the year-on-year rate of inflation in US imports from newly developed Asian countries. Admittedly, the definition of newly developed Asia does not include the mainland but it will serve as a proxy. I have tried a hundred ways to find or work out an export price index for the mainland but have always failed. If anything, however, US imports from China will show an even steeper rate of deflation with the pricing power that US buyers have over them.

It is a serious fix for an industrial economy heavily geared towards exports - costs up but prices down. It is so because this is the way that Wal-Mart wants it and what Wal-Mart wants, Wal-Mart gets. A big multinational reigns supreme over the industrial effort and pricing of a country that professes to shun big multinationals.

It is an irony that I think was unavoidable. Central planning, a fixed exchange rate and a closed capital account are not conducive to building up a thriving domestically owned industrial base and China's is not really China's. If not increasingly owned by foreigners, it is increasingly held hostage to them, however unpalatable that may be to opponents of globalisation.

But Messrs Brahm and Fan obviously believe it worthwhile to close the stable door after the horse has gone.