In the past, developing countries depended on the growth of the advanced economies. Today, they depend on the growth of China. Threats to China's growth are also threats to the developing world, the rise of Asia and the global recovery.

The global financial crisis has seen Asia emerge as a global economic powerhouse. In another half a decade, Asia's economy could be as large as that of the United States and the European Union combined.

The rise of Asia is predicated on the sustained growth of China, which is helping support growth and poverty reduction in much of the developing world, as well as the fragile global recovery in the advanced world. But nothing in economic development is inevitable. The growth of China depends on a stable and peaceful international environment.

Despite the slow and fragile economic recovery, the global financial system remains in a period of significant uncertainty. Advanced economies are facing the difficult challenge of managing a smooth transition to self-sustaining growth, while stabilizing debt burdens under low and uncertain economic prospects.

In contrast, emerging economies have proven resilient to recent turbulences, but are vulnerable to a slowdown in mature markets and face risks in managing sizable and potentially volatile capital inflows.

As the leading economies in the advanced world are drifting into a "liquidity trap", many central banks are opting for new rounds of quantitative easing (QE). But since increased liquidity seeks for high returns, QE will drive "hot money" (short-term portfolio flows) into the high-yield emerging economies, which can inflate dangerous asset bubbles in the emerging Asia and elsewhere.

Despite the "strong dollar" rhetoric in the US, the dollar fell by one-third against major currencies between early 2002 and this summer. During the two months before the Federal Reserve's (Fed) QE decision, the dollar dropped an additional 7 percent.

For all practical purposes, new waves of QE would mean further decline in the dollar's value, which would penalize the major holders of US Treasury securities. As a result, massive US debts would be inflated.

In contrast to the developed world, recovery has proved relatively solid in the emerging world. While the leading advanced economies have exhausted the traditional instruments of monetary policy, the major emerging economies are only beginning to use them.

Recently, People's Bank of China (PBOC) raised its one-year deposit and lending rates to 2.5 percent and 5.56 percent. The Reserve Bank of India raised its benchmark short-term interest rate to 6.25 percent. Brazil's interest rates are already close to 11 percent.

Soon PBOC will raise the deposit reserve requirement ratio for banks by 50 basis points - the fifth such increase this year and the second this month.