By John Sexton

China last week celebrated thirty years of sustained economic growth and social progress symbolized by the outstanding Beijing Olympic Games and the Shenzhou VII space mission. Meanwhile, the advanced economies reel from one rescue plan to another as they try to find their feet in a world knocked off its axis by the financial crisis.

The bursting of the mother of all speculative bubbles has forced Western governments to put their economies on life-support. BBC correspondent Robert Peston calculated that total state support to banks now amounts to a staggering 13.5 trillion dollars, nearly a quarter of world GDP. Without it, we would already be seeing a rerun of the Great Depression.

It is ironic that Western economists used to endlessly lecture China about non-performing bank loans to state owned companies. Today, China's banks are the soundest in the world and many state owned companies have become global players. Central banker Zhou Xiaochuan must have felt some satisfaction when he told Hank Paulson that "over-consumption and high reliance on credit is the cause of the US financial crisis" and "as the largest and most important economy in the world, the US should take the initiative to adjust its policies."

The great crash of 2008 was definitely not in the script. According to the consensus view of economists we were living in an era of "great moderation", in which historic volatility of markets had been tamed. In the endlessly repeated words of UK Prime Minister Gordon Brown, we had seen the back of "boom and bust".

We may well be witnessing the end of more than just the great moderation. For the past 30 years what came to be called the Washington Consensus ruled economic thinking, and Western governments, the IMF and the World Bank prescribed unfettered markets and privatization as the cure-all for all economic ills.

But in 2008 the world witnessed a gigantic demonstration of market failure. Alan Greenspan confessed himself puzzled; World Bank and IMF officials talked quizzically about the "pro-cyclical nature" of markets - in plain terms their propensity to boom and bust. Most economists are so disoriented that they are unable to say whether we face a period of deflation or increased inflation. Government interventions to counter the crisis have no clear theoretical foundation beyond an appeal to the unfashionable doctrines of Keynes.

What does all this mean for China where, according to domestic and international pundits, it is precisely the magic of the market that has lifted hundreds of millions out of poverty?

Well – first of all China's voice is going to carry much more weight in world economic forums. Advice is no longer going to be one-way. China - and India - are certain to be invited to sit at the top table. The IMF is talking about a new system of global economic governance based around the G20.

Secondly, China will not be unscathed by the crisis. Private sector exporters in the south have already been badly hit. The National Development and Reform Commission estimates that 20 million workers in small and medium enterprises lost their jobs in the first six months of 2008, before the financial crisis reached its acute phase. Furthermore, China now has its own internally generated bubbles. The emerging middle classes have speculated on the housing and stock markets no more intelligently than their western counterparts. Their losses will certainly dampen domestic demand.