The West loses control of the world's resources

Two articles in the Telegraph today that should make the West shudder: the first by Richard Spencer in Beijing tells us that the Chinese look to buy oil and gas companies overseas. China will use its vast currency reserves (transferred from the West due to trade imbalances) to buy foreign energy companies. This will cause alarm bells in the West, but Western governments are concentrating on bailing out their banks rather than securing future energy reserves; after the bailout, there will be no money to buy energy shares ourselves, even if there was the will.

The second article in the business pages by Ambrose Evans-Pritchard starts by saying: "US Secretary of State Hilary Clinton has pleaded with China to continue buying US Treasury bonds amid mounting struggle to finance bank bailouts and ballooning deficits over the next two years." Clearly the US need for Chinese money will make it more difficult to get tough with China on its mercantilist policies on the world's energy and commodity resources. Not that there is much point in doing so if we continue to lose our manufacturing capability. In fact, Clinton says "Our economies are so intertwined, the Chnese know that to start exporting again to their biggest market ... means we have to incur more debt". Interdependence is mutually beneficial, she says.

Clinton seems happy to be the consumer and debtor in this intertwined economy, but the country with the reserves and wealth is the producer and creditor, who can buy up the limited quanity of the earth's raw materials. The Chinese version of state Capitalism is making a mockery of any flat-earth optimism about a world of equal opportunity and interdependence. This is where economic laissez-faire fails, because the world's resources are fixed; and. China will to an extent corner these resources through financial might, while an indebted West looks on. The worst case scenario is that there will be many things the West cannot manufacture because China has bought up all the raw materials.

Obama is looking to halve the debt in eight years. Good for him. He is also stepping up the war on Afghanistan which will cost money. To pursue foreign wars, you need a sound economy. More importantly, the obsession with Muslim terrorism has allowed the West to be diverted from its own economic weakness and the threat from Asia. Not that China is particularly malevolent here; it is merely advancing its own interests, something which globally-minded liberals in the West think we have progressed beyond. Nor should we aim to stop China's rise; we "merely" need to retain enough economic strength that we can hold our own financially and defend our interests.

America will survive of course, but more worrying is the fate of Europe. We tend to think of Africa as the sick continent; but Africa has strong demographics, lots of land and very significant oil and commodity reserves. Europe is weak demographically and with comparatively few natural resources. Geographically, America is protected by two oceans, whereas Europe is surrounded by regions of instability.