China and other emerging markets have been the big success story of the past decade, outperforming developed markets and leading many to predict that China will be next global superpower. So as the debate about the decline of the West and rise of the BRICs (Brazil, Russia, India and China) reaches feverish proportions, should we really still believe the BRIC hysteria?
George Magnus, the senior economic adviser at UBS, doesn't think so.
Mr Magnus, one of just a handful of people correctly to predict the financial crisis in early 2007, says: "There's no question you can make money from the BRIC growth story, and if you don't like the exposure to local companies and governance, there are plenty of Western companies which will benefit from it. But investors need to be more aware than ever that significant economic and political changes are afoot with often quite unpredictable outcomes."
The 61-year-old compares such changes with the current unrest in the Middle East and North Africa. "The uprising across the Middle East and North Africa (MENA) doesn't feel or look like the unequivocally positive world-changing events associated with the collapse of communism in 1989. Yet, it too will change the region and the world, but in political and existential ways that are impossible to predict. Small wonder that financial markets are wrestling with considerable uncertainty: they don't like rising oil prices, political instability and possible contagion risks to other emerging countries, especially where autocratic governments rule and corruption is widespread.
Mr Magnus says that even in countries such as China, where, unlike in the MENA region, citizens have economic opportunities, the rising clamour for political rights and civil liberties demonstrates that, in the end, dignity and respect can't be bought.
"The so-called national Jasmine demonstrations have been as ineffectual as the clamp-down has been tough, but incidents of social unrest already number about 90,000 a year, largely focused on local corruption and miscarriages of justice. There is a bedrock of unrest that could easily be stirred if economic circumstances deteriorate, which well they might."
What's more, uncertainty surrounding China and other major emerging markets is starting to be reflected in emerging market equity performance. "The fizz went out of emerging market equities last summer, and earlier this year, several billion dollars of mutual-fund equity holdings were shifted from emerging to developed markets.
China's Shanghai index peaked two years ago and is off by about 14 per cent. India's Sensex has fallen by 10 per cent in the past few months, and Brazil's Bovespa has been treading water for some time."
Why the lacklustre equities? "The principal reason has been rising inflation - now at five per cent in China, over six per cent in Brazil, and eight per cent in India - which has prompted central banks to raise interest rates and apply other tools of monetary restraint.
Food prices have also been a significant factor. In some countries, notably China, the fingerprints of rapid money supply and credit expansion, property inflation and wage increases are also present.
But while Brazil, say, has been fast out of the traps to contain inflation, China's anti-inflation response lacks political conviction and efficient tools - and don't think that off-balance sheet lending by financial institutions is or was a Western problem only.
In China last year, it was almost half as much again as total official credit expansion. With a leadership change coming in 2012, no one wants to take the responsibility for choking off the property boom, or causing economic growth to slow down, which would be disruptive politically.
And so, equity investors in China have additional issues to ponder. "The financial crisis has left China dangerously exposed to a development model, based on capital investment and exports that is no longer suitable for the post-crisis world. Since Western countries have to lower their debt and save more, the world can only work smoothly if someone else saves less. This means that China, the world's biggest creditor and exporter, has to become more consumer and service-oriented. This is not to say that Chinese households have been slouches, but consumption accounts for a mere 36 per cent of GDP.
"China has become chronically unbalanced because the other sectors have become excessively large. 'Rebalancing' is the buzz word in Beijing, and the current Twelfth Five-Year Plan aims to achieve more sustainable growth, lower rural-urban income inequality, and expanded social housing and social security.
However, rebalancing is also an intensely political phenomenon, entailing the removal or dilution of vested political interests in companies, coastal regions and cities, that have gained so much in the past 20 years, in favour of political and institutional rights for the laggards - consumers, the countryside and inland provinces. This starts to emphasise the significance of change in China, more than any spreadsheet can."
So, are we still justified in assuming that China and the other major emerging markets will generate the growth and investment returns we lack in the West? Yes, but with important qualifications.
"Yes, because in the long run, the BRICs will be home to nearly all of the future growth in the global labour supply, the next billion consumers, a rising number of global companies and new technologies spanning energy, high-end consumer products, telecommunications and biomedical products. And also because we are witnessing an uprising, in which the rich world's economic supremacy of the past 250 years is being diluted. This phenomenon will cause much anguish in the West, but also opportunities in the East to create a more prosperous world.
"The immediate political task of putting the inflation genie back in the bottle will pose a risk to growth for a while. Further out, the challenges which, for example, China faces with rebalancing, India with job creation and poverty, Brazil with income inequality and fiscal governance, and Russia with political and corporate governance, will demand not so much money, but strong political will and high-quality institutions. Without these, they may simply run into a "BRIC wall". As they say at the tables, 'faites vos jeux'.
Mr Magnus has been senior economic adviser to UBS since 2004 following an eight-year stint as the bank's chief economist. He lives in north London and is the author of Uprising: will emerging markets shape or shake the world economy?