Leave it to Citigroup Inc. to settle the raging debate about the true might of China’s economy.

The debate was prompted by a recent World Bank report claiming the world’s No. 4 economy is far smaller than believed. The new calculation, based on purchasing-power parity, found that China produces 40-percent less output than previous estimates.

The largest US bank is proving wealth speaks louder than statistics. Citigroup may be turning to the cash-rich Chinese government for a handout, joining other household names like Morgan Stanley.

It would be the latest sign China is, according to Joseph Quinlan, chief market strategist at Bank of America Capital Management, “America’s Financial Sugar Daddy.” First came its $3-billion investment in Blackstone Group LP, one of the most capitalist of Wall Street vehicles. Now, “communist” China is routinely bailing out the masters of the financial universe.

China is hardly Wall Street’s only savior. Singapore’s state-run Temasek Holdings Pte. tossed a $5-billion life preserver at Merrill Lynch & Co. And now, after a $7.5-billion investment from Abu Dhabi Investment Authority, Citigroup may be getting a cash infusion from China and Saudi Prince Alwaleed bin Talal.

Three bubbles

On the surface, all this back-scratching makes sense. Asian and Gulf governments, with their currency reserves and oil wealth, face a kind of embarrassment of riches and are open to buying into Wall Street at fire-sale prices. In the West subprime-mortgage losses have drained the capital Citigroup and others keep as a cushion against bad loans.

Yet, such transactions of convenience are joining together three of the world’s biggest bubbles: China’s economy, oil prices and Wall Street’s hubris.

The Chinese bubble that gets the most attention is stocks. The CSI 300 Index climbed 162 percent last year, even as officials took steps to calm the market. In 2007 the names of three Chinese banks and the word “stocks” beat “sex” to become four of the most Googled words in China.

Another bubble is a stockpile of currency reserves that is approaching the equivalent of Brazil’s annual gross domestic product. Economists are wondering about bubble troubles elsewhere. Officials are so worried about inflation that they’re freezing price increases of oil products, natural gas and electricity.

Oil boom

Oil prices near $100 per barrel seem emblematic of the surge in commodities. Prices for everything from grain to gold to zinc are being driven higher by the rise of China, India and other developing powers and speculation in markets. While the commodities boom is crimping global growth, its proceeds are enriching resource-rich nations.

Saudi Prince Alwaleed’s consumption patterns say it all. He’s buying his own Airbus SAS A380 superjumbo jet for personal use. That $319-million purchase in being financed by a lack of energy conservation and efficiency around the globe. That’s just fine by Gulf states rolling in petrodollars and using them to extend their global reach.

And then there’s Wall Street’s hubris bubble. While it’s manifested itself in myriad ways over the decades, the most recent incarnation is among the most disturbing. Banks sold risky loans to Americans least equipped to understand or handle them. Then Wall Street systematically packaged that risk in ways that hid the dangers. Even as things unraveled, experts lined up to say the turmoil would be “contained.” As if.

New risks

Whether serendipitous or by design, the connecting of these three bubbles raises the stakes for the global financial system. Here’s but one example: if China overheats or its stocks plunge, Wall Street shares could take a hit as investors bet on an end to bailouts from China Inc. Or if Wall Street’s hubris resulted in even more bad loans, China’s stocks could take a hit as investors mull the fallout for Asia’s No. 2 economy.

The intermingling of a Wall Street on the ropes, a China on the verge of overheating and obscene oil wealth is creating a brave new world of finance. Indeed, the thrust of Aldous Huxley’s Brave New World dovetails nicely with what’s unfolding in global markets at the moment.

Huxley wasn’t thinking about Wall Street when he wrote his 1932 novel. Yet, the motto of the utopian world Huxley created—“community, identity, stability”—isn’t all that unlike what people from Federal Reserve Chairman Ben Bernanke to Citigroup chief executive officer Vikram Pandit to Chinese President Hu Jintao are trying to achieve.

Brave New World

Bernanke and Pandit are interested in the stability of the global financial community. While Hu shares that goal, he’s also interested in creating a more global identity. This is China’s moment, not only to spread its “soft power” but also its influence over the global economy’s biggest players. A bigger say in the International Monetary Fund is one thing; pieces of Citigroup and others are nice to have, too.

As the world’s bubbles intersect, the challenges of the global system arguably become more complex. It will be interesting to watch them coexist, feed off and perhaps even reinforce each other in the months ahead—or frightening.

IT took a while, but at least something’s moving. On Thursday last week the Bureau of Internal Revenue’s (BIR) legal group received mighty good news for the new year: a break, for once, in the criminal prosecution of parties implicated in the multibillion-peso tax-credit scam cases that are believed to have cost the government at least P5 billion in the five years they were perpetrated in the ’90s.

Trademark pirates will now have a harder time misappropriating internationally well-known marks. A common practice by unscrupulous individuals is to search for popular or up-and-coming brands and to register trademarks associated with such brands in their own name ahead of the rightful owners.

The Bible says “There is nothing new under the sun,” and the older I get, the more I am sure that the Bible is right.

Mirror on the wall: Favila wants to suppress free speech

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Sen. Edgardo J. Angara: Recreating Korea’s miracle in the Philippines

One of the most notable catch-up stories of economic growth is South Korea’s, known as the “Miracle of Han River.” 

William Pesek: China + Citigroup + Alwaleed = Brave New World

Leave it to Citigroup Inc. to settle the raging debate about the true might of China’s economy.

The debate was prompted by a recent World Bank report claiming the world’s No. 4 economy is far smaller than believed. The new calculation, based on purchasing-power parity, found that China produces 40-percent less output than previous estimates.

Philip M. Lustre Jr.: A question of policy

Republic Act (RA) 7925, or the Public Telecommunications Policy Act of 1995, is a law that is long in vision, but short in implementation.