By Jamil Anderlini in Beijing

Published: July 21 2009 19:09 | Last updated: July 21 2009 19:09

Beijing will use its foreign exchange reserves, the

Mr Wen said Beijing also wanted Chinese companies to increase its share of global exports.

The "going out" strategy is a slogan for encouraging investment and acquisitions abroad, particularly by big state-owned industrial groups such as

By Joe Quinlan

Published: July 21 2009 14:49 | Last updated: July 21 2009 14:49

The rally since March in global equities has been underpinned by the massive policy response from governments round the world. How ironic, then, that the very policies promoting global growth – fiscal spending, tax breaks, bank bail-outs, etc – could ultimately be diluted by government initiatives supportive of protectionism.

Protectionism has become a growth industry, with numerous nations – including the US – opting for various direct and indirect barriers to trade since the global financial meltdown of September 2008. The World Bank notes nearly 90 new restrictions on trade since October 2008. Of the G-20 nations, 17 countries have implemented some type of trade protectionism since pledging not to in November 2008. Recent trade infractions range from iron and steel tariffs in Russia, to massive automobile subsidies in the US and Europe, to agricultural restrictions in Argentina and Brazil. Everyone, so it seems, is doing it, with China the latest to

What’s more, the latest edicts from Beijing are notably worrisome since they emanate from one of the strongest economies in the world. If China – with an economy expanding at an annual rate of roughly 7 per cent – feels the need to opt for blatant protectionism to mollify worker discontent, think of the mounting pressures on states whose economies have sunk deep into recession.

For investors, a dangerous new world of de-globalization may loom on the horizon. This would be a world where trade flows are restricted, cross-border investment is inhibited and industrial policies that favour domestic firms at the expense of imports and foreign competition take precedent.

De-globalisation would leave consumers paying higher prices for imported goods, while making it harder for multinationals to access foreign resources and markets, boosting their costs and damping future earnings. Global supply chains are at risk of fragmenting at huge costs to firms whose production networks are spread all over the world. Many developing nations would suffer from a structural decline in remittances as workers who once toiled in the developed nations or the oil-rich states of the Middle East are permanently sent packing. The upshot: a shackled global economy growing at a much slower pace than in previous decades.

Many fear de-globalisation has already arrived, pointing to the recent collapse in global trade, the plunge in foreign direct investment, and the steep fall in global remittances. These trends, though, are largely cyclical in nature and reflect a battered global economy that has slowed or halted the pace of virtually everything (capital, goods, services and people) that moves across borders.

The risks of de-globalisation, however, should not be lightly dismissed. History shows us that protectionism begets protectionism. As the jobless ranks swell around the world in coming months, the backlash against globalisation will grow. The alternative may be de-globalisation or the unbundling of a tightly wrapped global economy that has yielded widespread growth and prosperity for rich and poor nations alike. This may sound far-fetched and alarmist. But it wasn’t that long ago that US subprime loans were considered benign and contained to the US.

The bull case for global equities is premised on the belief the worst is past – that the global economy is on the mend. This assumption has yet to be proven but a few promising signs are emerging. Yet the government-led global rebound could still be aborted by government-sponsored protectionism.

The writer is chief market strategist, global wealth & investment management, Bank of America.