The emergence of China as an economic superpower

The financials have a better outlook compared to just a few days ago. Citi, the largest commercial and investment conglomerate that was heavily exposed to subprime, is now slowly climbing out of the red via a surprise investment from the Abu Dhabi's sovereign investment fund. The typically low-key fund pumped more than $7.5 billion into Citigroup, coming out with approximately a 4.9% stake (Middle East investors now own 10% of Citigroup, after the company was bailed out by Saudis in the 1990s).

More interestingly, positive news is coming out of Citi's Asia-Pacific region. Yiping Huang, Head of Citi's Economic and Market Analysis in Asia-Pacific, estimates an average of 8% growth rate despite the recent downturn. He calls the slowdown in recent months "cylical" and expects the economy to recover fully in anticipation of the Fed cutting 1% on the Fed Funds rate.

Huang also said that increasing globalization and integration of economies is paving way for China and India's continued growth, rather than isolation of Asian economies. Intra-regional trade of intermediate goods has increased, but only 21% of finished goods stays within Asia. Therefore, growth in the Asia-Pacific region is undoubtedly linked to the US, and more so as growth and exports increase further. Risk in Asia is hence linked to risk in the US, but after the Asian Financial Crisis, central banks in Asia are more vigilant and robust to withstand external shocks in terms of debt structures and foreign exchange reserves.

Lastly, Huang mentioned that China is becoming a deflationary force in global markets, rather than a leader in worldwide inflation. China is improving its competitive edge via technological advancement, therefore the balance between the rise of China's export prices due to yuan appreciation and higher production costs is maintained and justified. If China stays out of trade wars with Europe and the US, it should maintain a GDP growth of about 10%. Huang doesn't believe that the Olympic games will affect growth in any way other than increased publicity. What do you think?