We are entering a new era with the latest GDP figures showing that China is now the world's second largest economy, overtaking Japan. Unlike China, Japan does not have a massive pool of cheap labor and it does not have China's natural resources.

So what does that mean for the world? China's focus on growth over managing inflation is dangerous and Bank of America Merrill Lynch research warns that we could see a full blown asset bubble there next year.

Writing in the World Politics Review, John Lee says one of the big problems in China is the number of non-performing or bad loans. The bank balance sheets are superficially healthy, but that's only because of the periodic bail-outs by the government where bad loans are transferred to "asset management companies." Bad loans are removed from balance sheets due to stipulations that maturing loans be "rolled over" since they cannot be paid back. There is only one reason Chinese banks are solvent: the high savings of the populatio. But then, people there only deposit money into their accounts because few other options besides state-controlled banks exist in China.

Still, the rise of China will continue to shape the global economy in 2010 and there are now forecasts that China will overtake Germany as the world's largest exporter.

We are witnessing the beginning of whole new world order.