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By Craig Stephen

HONG KONG (MarketWatch) -- Last month's decision by HSBC Holdings to relocate its group chief executive officer from London to Hong Kong sent a strong signal about where the bank sees its future.

Now it looks as if new research from its economics team explains this move in report titled, "The Tipping Point -- The rise of the East and Demise of the West."

Have events reached the point where the threshold has been passed and everyone just "gets it," or is this a case of just following the new bubbles in the East?

The International Monetary Fund seems to "get it." Last week, it released forecasts saying the world economy will recover next year, but it will clearly be led by emerging economies, namely China with 9% growth in 2010 and India with 6.4%. That compares with U.S. growth at 1.5% and a mere 0.3% for the euro region. See full story on IMF World Economic Outlook.

And this two-speed growth is certainly reflected in the economic headlines of the day. Last week, U.S. unemployment reached a 26 year-high of 9.8%. For the U.K., the IMF warned of a structurally unsustainable debt mountain approaching a massive 13% of gross domestic product.

It's a different story in Hong Kong where attention is focused on an influx of free- spending Chinese tourists for the eight day mainland holiday centered on National Day and the Mid Autumn festival. More than half a million tourists are forecast to visit, and property developers, retailers and hotels are all expecting a brisk trade.

At the same time, for those worried about a changing of the balance of power on the world stage, it seems evidence is everywhere. Last week we watched China's bold 60th anniversary National Day Celebration parade in Beijing, including reportedly 50 new weapons systems. Meanwhile, it was Rio de Janeiro that got the vote to host the 2016 Olympics, and not Chicago, despite a personal plea by President Obama. And how many more times will we see Group of Seven meetings in the future, rather than G20, to reflect the new profile of world growth?

HSBC forecast emerging nations will dominate world economic activity in the years ahead.

A key reason is the debt burden of the developed world. Recent policy may have stabilized financial markets in the West, says HSBC, but individuals and governments remain awash in debt. Banks no longer enjoy the funding conditions of old, and this will combine to be a drag on growth.

Looking ahead, difficult choices will need to be made on "exit strategies" from stimulus programs. The IMF says the British will have to get used to working longer before retirement and paying for health care. Alan Greenspan now says the U.S. should consider tax increases to bring down debt.

The other trend HSBC economists highlight in their "tipping point" theory is that continued low interest rates will lead to global excess liquidity flowing into developing markets. That's where the growth is, and where banking systems are robust. We have certainly seen this in Hong Kong.

In his new residence, HSBC's CEO Michael Geoghegan will likely spend more time with the new Hong Kong Monetary Authority Chief, Norman Chan, than with embattled British finance ministers. See full story on HSBC CEO move.

Here, Geoghegan will have a ringside seat for the action as China moves to develop yuan trading in Hong Kong and internationalize its banking system. No doubt he will also want to be close at hand if the changing dynamics of the world economy mean Hong Kong eventually pegs its currency to the yuan and not the greenback. This is a policy to which there will be no change, Chan said during his first day in the job, as might be expected.

Playing 'tipping point' theory

For investors, even if you agree with this tipping point theory, playing this transition is not straightforward.

Slow growth and debt is usually bad new for respective currencies and HSBC says developing country currencies should strengthen against debt-burdened currencies like sterling and the dollar.

But for corporates, it's a more complicated story. For China with its mercantile-style economy with a large degree of state-owned enterprises, country and corporate interests are often aligned, but shareholder interests less so.

In the West, international corporates are adept at minimizing the debt burdens of their home nations with careful tax planning.

HSBC's CEO can cut his tax bill from 50% to 17% by relocating to Hong Kong. So far the group has not changed its tax domicile.

For investors, however, playing this new growth dynamic does not necessarily mean having to buy Chinese or Indian companies. The other option is global companies positioned for this growth.

One potential scenario to which this HSBC analysis leads is the excess global capital being channeled into developing markets, not just driving growth but a new propensity for bubbles.

We may be witnessing one in the initial public offering market in Hong Kong. After a recent massive over-subscription of new IPOs ( See Sep. 20 column.), subsequently five IPOs in Hong Kong closed below subscription price. Only time will tell -- how much of the rise of the East is just the rise of a bubble?