And, at current prices, China is a major world equity market: the market capitalisation of Shanghai and Shenzhen stock exchanges together comes to about $ 5 trillion, and has crossed the Japanese stock market capitalisation. Many would consider it overvalued, with the historic price earnings ratio in the neighbourhood of 50!

However, it should be noted that the 10-year bond yield is 4.35 per cent, and by the "Fed Rule," a rough and ready yardstick reportedly used by the Federal Reserve in the US, a PE ratio of around 23/25 would be justified.

Since presumably the Fed Rule applies to "mature" markets with growth rates of perhaps 2.5-3 per cent, higher multiples are justifiable for an economy that continues to grow in double digits.

A couple of months back, the market took the tripling of the stamp duty on transactions, intended to cool it, in its stride; the sub-prime crisis in a distant market is not something to lose sleep over.

A couple of Chinese banks do have some minor exposures to the affected segments through investments in CDOs, but at a manageable level.

In retrospect, what surprises me more is how equity prices remained stable to soft, with the PE ratio in single digits, for a period of roughly three years (2002-2004); since then the index has gone up almost five times, and the market capitalisation has zoomed much more following the listing of many large companies and banks in the last few years.

The huge pool of domestic savings, and the Chinese willingness to take risks - some might say gambles - are, of course, behind the boom. (As for gambling, Macau, the former Portuguese colony now part of China, has already overtaken Las Vegas as the gambling capital of the world - with more visitors, hotel rooms and investments in casinos than the famed excesses of the US city).

To provide more outlets for the glut of domestic savings and hopefully cool the stock market, China is allowing its banks to invest funds in qualified domestic institutional investors, authorised to invest in overseas stock markets: there do not seem to be too many takers, given the higher returns in the domestic market.

The recent liberalisation permitting investments for individuals in the Hong Kong stock market could also have the same fate - but the Hong Kong index had gone up on the news.

The appreciation of the domestic currency by 5 per cent so far in the current year, and expectations of continued appreciation, if only at a deliberate, gradual pace, also militate against the attractions of foreign investments.

The gradual appreciation over the last couple of years has not dented the competitiveness of the domestic economy: the surplus on current account was $ 25 billion in August, the second highest monthly surplus on record. Given also the huge capital inflows, the reserves keep mounting: close to $ 1.4 trillion at last count!

If there is a dark cloud, it is inflation. The central bank has taken successive steps to tighten money and increase interest rates, falling prey to the Chicago disease, but they still remain negative in real (inflation-adjusted) terms.

Another cloud is the recent incidents raising questions about the quality of Chinese manufactures, sold domestically as well as exported. But decisive action has been taken, with 2,000 plants closed, and the official who allowed sub-standard drugs to come in the market, hanged.

China's diplomatic successes are also worth noting. Having settled border disputes with all its neighbours - India being the exception - and given its economic importance, many Asian countries, formerly close allies of the US, are now wooing China: no wonder President Hu was the focus of attention in the recent APEC summit meeting in Australia, overshadowing Presidents Bush and Putin.

A couple of other major initiatives of Chinese diplomacy are also important. These are being driven by the insatiable Chinese appetite for natural resources. One is the Shanghai Co-operation Organisation (SCO) consisting of China, Russia and four central Asian republics rich in oil. If the US manages to alienate Iran even further, that country, which already has an observer status in SCO, may well prefer to become a full member: in that case, SCO will be as powerful a force in the oil market as OPEC.

The other initiative is, of course, in sub-Saharan Africa, another area rich in natural resources. China has promised $20 billion in infrastructure and trade finance in sub-Saharan African countries over three years, and as many as 750,000 Chinese are currently working in Africa on different projects!

Clearly, we are witnessing the emergence of the 21st century superpower!