The emerging markets have accumulated massive currency reserves. The export boom in Asian emerging markets, coupled with soaring commodity prices, facilitated this buildup of liquidity.

There can be no doubt: In Asia there have been speculation bubbles which burst with a mighty bang. The loudest bang could be heard when the Japanese bubble popped on the country’s equityand real estate market nearly 20 years ago. Then came the Asian crisis 1997/98. Now bubbles are suspected in China.

This article examines China’s long-term economic outlook. We analyze the factors driving Chinese economic growth. We reach the conclusion that economic momentum will gradually lose steamover the coming 14 years. For the period 2009-2012 our base scenario foresees average annual GDP expansion of 9 %, for 2013-2022 by contrast 7 %. Nonetheless, by 2022 China will have become the world’s third largest economic region, almost pulling level with the euro area. This development will be accompanied by many structural changes: domestic demand, led by private consumption, will see above-average growth, where as the importance of exports as the main driver of the economy will fade.

Economic activity in the emerging markets is still purring: Russia’s economy expanded by more than 8 % in 2007, reminiscent of far eastern or even Chinese expansion levels. India is notching up similarly strong economic momentum, and in Latin America there have not been any signs so far of the frequently prophesied economic downturn.

Is the Chinese central bank increasingly switching its currency reserves from US dollars into euros and thus helping to drive the euro up sharply against the greenback? Although little is known about the composition of Chinese currency reserves, a number of signs point to such an investment strategy shift.

China’s stock market is overheated, prompting growing concerns among investors and exporters as to the consequences of a possible massive correction on the real economy. Nevertheless, we believe that the impact on the country’s economic development and on the global economy will be limited.

The countries under review have now been sparkling for years, with in some cases extremely high growth rates. Leading the way are China – where we expect growth of over 10 % this year, despite moderate dampening measures on the policy front – and India with 8 %. For the Far Eastern emerging markets as a whole we have penciled in 2007 real GDP growth of 7.8 % (2006: 8.3 %).

The turbulence on Thailand’s financial market over the past month shows just how deep-rooted the Asian crisis remains in the minds of investors. Such fears, however, are largely unfounded. The macroeconomic situation in the Asian region is far more stable today and in most countries current economic growth is not overstretching domestic production potential. The party in Asia goes on.

Asia is the most dynamic economic region in the world, as the high growth rates in the Far Eastern countries have demonstrated again and again. And when reference is made to the Asian economic miracle, all eyes turn almost inevitably to China and India.

The climate on the financial markets is getting harsher. For three weeks now shares have been tumbling around the globe – including Asia.

Globalization has significantly hastened the process of catch-up in the Asian emerging markets over the past two decades. Dynamic economic development in the Far East reflects the Asian countries’ powerful international competitiveness and their consequent export boom. Since the beginning of the 1980s, and in spite of the setbacks caused by the Asian crisis, the economies of Asia have most doubled their share of world trade. Roughly half this external trade is conducted within the region itself. For years now a process of redirection in trade flows has been taking place in the Far East, with China as the “biggest winner” in Asia’s re-division of labor. Japan and the ASEAN states, on the other hand, have lost trade shares. Already, China is the third largest trading nation in the world and will further expand on this position moving forward.

The Asian emerging markets can look back on a very successful year. After a brief slowdown in growth Thailand returned to its old form and in South Korea as well the domestic economy, which had fallen short of expectations in the previous years, regained momentum.

Emerging markets in Asia are the world's most dynamic economic region. The same will be true in 2006. Exports are the force driving this boom in the Far East, chalking up double-digit growth rates in US dollar terms. In China’s case, they will be up by no less than 30 % on a year earlier.

Now it has happened: with effect from 21 July 2005, the Chinese central bank has revalued the renminbi and tied the future exchange rate to a currency basket. The detail of future currency management cannot be gauged yet as the composition of the currency basket is not yet known.

The currency reserves of the Asian emerging markets are vaulting from one record to the next. Are the region's central banks influencing developments on the international currency market with their investment policy?

The Asian markets stand out among the equity markets in emerging market economies in terms of both market capitalization and performance. For many investors, however, their structure is still a closed book.

First reforms of the welfare system in the People's Republic of China were initiated in the eighties, but the restructuring has still not reached completion. To date only the urban population is entitled to receive welfare benefits while the majority, living in rural areas, is still largely precluded. The welfare state is in urgent need of expansion in the face of rising unemployment, an increasingly aging population and crumbling social structures.

“Gradual slowdown” in China’s case, “Passed its Peak” and “Hopes Pinned on Domestic Economy” in the case of Malaysia and South Korea – these are the headings of our country analyses in this issue.