2008: The year a new superpower is born

(David Gray/Reuters)

Here comes the world's newest superpower. The rest of the world is gloomily contemplating economic slowdown and even recession. Not in Beijing. China is set to make 2008 the year it asserts its status as a global colossus by flexing frightening economic muscle on international markets, enjoying unprecedented levels of domestic consumption and showcasing itself to a watching world with a glittering £20bn Olympic Games.

The world's most populous nation will mark the next 12 months with a coming-of-age party that will confirm its transformation in three decades from one of the poorest countries of the 20th century into the globe's third-largest economy, its hungriest (and most polluting) consumer and the engine room of economic growth.

Once regarded at best as a sporting also-ran, China is widely tipped to top the medals table in the Beijing Olympics in August, an event in which the country's leadership is investing huge importance and prestige.

It will be a celebration viewed with consternation by many, as China's authoritarian regime shows little sign of relaxing its grip on power and continues to expand its influence overseas from the oil fields and metal mines of Africa to the City of London. Appropriately, 2008 marks the Year of the Rat, an animal considered in Chinese folklore to be a harbinger and protector of material prosperity.

Britain will feel the full power of the new superpower's confidence. This month, for the first time, China's state-controlled banks will begin spending some of its $1.33trn (£670bn) in foreign currency reserves on London's financial markets. Beijing has ruled that Britain should become only the second destination after Hong Kong to be allowed to receive investors' money via so-called "sovereign funds" the huge state-controlled surpluses built up by cash-rich economies from Qatar to South Korea. Throw in the biggest round of Chinese art exhibitions ever to tour these islands and the oriental bias to 2008 becomes even more pronounced.

The UK has made it clear that Beijing's investment, which could reach as much as £45bn, is welcome and it follows the recent acquisition by Chinese banks of stakes in such blue chip stocks as Barclays and the US private equity firm Blackstone, at a cost of $3bn. The talk in the finance houses is that the label "Made in China" will soon be replaced by one reading "Owned by China". Takeover speculation has provoked concern in some quarters at the wisdom of selling large assets to organs of a democratically unaccountable state where the financial sector remains underdeveloped.

China's trade surplus with the rest of the world will widen from £130bn in 2007 to £145bn this year as it tries to tame its burgeoning economy amid pressure from Washington and Brussels to narrow the trade gap and raise its currency's value.

Stephen Perry, chairman of the 48 Group Club, a Sino-British business network, said: "China has become an international player much more quickly than it would have wanted to do, in part to meet its need for natural resources. But I don't think China has any intention of taking on American power. The West is important to China in this stage of its development as it seeks inward investment. But that is beginning to be much less important and it is looking more to the development of a strong Asia, in which it is one of the strongest players because of its enormous consumer base."

But while some may question Beijing's political motives, there is no doubt that China has arrived as serious power-broker. Last year, it surpassed America as the greatest driver of global economic demand. It is also widely predicted to overtake Germany as the world's third largest economy this year.

While nearly all of its success since Premier Deng Xiaoping began China's economic transformation in 1978 has been driven by producing goods for the outside world, the country has a burgeoning urban middle-class whose insatiable appetite for consumer durables is hoped to put the economy on a more stable footing. One London-based luxury markets analyst said: "The Chinese are waking up to quality brands in a way that is quite exciting. There is a real sense that what the West once kept to itself is now available to them, or at least the urban few who can afford it."

The arrival of conspicuous consumption and entry of Shanghai's sovereign funds into foreign investment markets, with London soon expected to be followed by the US, is symptomatic of a China increasingly willing to assert itself as a political and cultural influence, according to experts.

From global warming to Darfur and North Korea, the views of Beijing and its willingness to act have become prerequisites to any solution to the world's most pressing problems.

The Chinese New Year on 7 February will herald the beginning of the largest-ever festival of China's culture in Britain with an accent on contemporary artists in fields from video art to neon signs. But others warn 2008 has as much potential to be a disaster as a triumph for Beijing's attempts to herald its own arrival on the world stage. The Chinese capital will host 31,000 journalists for the Olympics and any sign of protest or an attempt to quell dissent with violence would be catastrophic.

The drum beat of protectionism is already sounding in America and will only get louder in a presidential election year, putting pressure on both Republican and Democratic candidates to take a "strong" stance on China. In the meantime, Beijing will have to grapple with issues from rising inflation to Taiwan, which holds presidential elections in March, to its status as the world's biggest emitter of carbon dioxide and likely role as the largest consumer of primary energy resources.

Dr Kerry Brown, associate fellow of the Royal Institute of International Affairs, said: "There are good reasons to feel pretty uncomfortable about 2008 for China. The world will be rightly watching China in August for the Olympics. But it will only take one truncheon blow to turn it away from a story about sport to one about repression."