World underdogs take the lead

The United States is struggling to hit 2.7% growth for the year, while emerging economies, which also include smaller countries mostly in Asia and Latin America, are collectively on track for 7.1% growth for the year.

On a trip to Asia this week, President Obama reaffirmed India's increasing importance as a global trading partner, signing $10 billion in contracts for U.S. exports. And when world leaders meet in South Korea for the G-20 summit this week, Europe will give up a few IMF seats to emerging nations to reflect their expanding global influence.

China has already surpassed Japan to become the world's second largest economy, and could overtake the United States for the no. 1 position in 10 to 15 years. If that happens, it will mark the first change in the leadership position, since the U.S. overtook Great Britain in 1894.

So where did these countries get it right while western superpowers got it so wrong?

How they got here

Unlike the U.S. and Europe, banks and governments in emerging countries didn't take on much risk leading up to the recession, and had a huge savings stash.

This was a lesson they had learned after getting socked by financial crises in the 1990s, said Garry Evans, global equity strategist for HSBC, based in Hong Kong. By the time the recession hit in 2007, many of the emerging countries were well-positioned to withstand another shock.

For example, after a massive financial meltdown in 1997, Asian countries were bailed out by the IMF. As a condition, they were forced to adopt strict regulations. To avoid similar medicine in the future, those countries buckled down, Evans said.

"It's a bit like if you bully a kid at school, the kid is going to learn martial arts and keep a stock of knives hidden in the closet so he can come out fighting the next time," Evans said. "There's a bit of that mentality in Asia."

After decades of hyperinflation and a currency crisis in the late 1990s, Brazil, too, had implemented conservative monetary and fiscal policies that shielded it from the worst of the recent financial crisis.

So while U.S. banks lost billions as their investments in mortgages and complex securities went belly-up, banks in developing nations were sitting on a comfortable cushion of cash and more conservative investments.

Growing too fast?

While it might sound like a win for the global economy, rapid growth in emerging markets is not without risks.

For example, export-dependent nations like China are running huge trade surpluses at the expense of trading partners like the U.S., igniting tensions around the world and sparking fears of global trade wars.

And growing too fast can pose other dangers too. For example, China's overheating real estate market is a looming danger, as breakneck growth -- on track for 10.5% in 2010 -- has pushed property prices sky high. A bursting real estate bubble in China could bring on another economic meltdown that could spread to the rest of the world.

Chak Wong, a finance professor at Chinese University of Hong Kong, likens the hurdling Chinese economy to the movie "Speed," the 1994 thriller where a bus is detonated to explode if it slows below 50 miles per hour.

0:00/4:33Greece sees growth next year

"China more or less is like that ... they would like to stop it, but it's really difficult to stop it without causing major damage," Wong said. "The really difficult part is how to engineer a soft landing."

Kicking the 'third world' stigma

Even if China does become the world's largest economy, its population is roughly 4.5 times bigger than that of the U.S., making it difficult for China to catch up to the American standard of living, said Jay Bryson, global economist with Wells Fargo.

"It's only a matter of time before they catch us. Sooner or later India will probably catch us as well," Bryson said. "But, when that day comes, they will still be very, very dirt poor economies. The average Chinese citizen will be 25% as well-off as the average American citizen."

Still, many say the U.S. should not fear emerging markets, led by China, taking on a larger leadership role in the world. In some respects it may just be a "return to normal," said Piero Ghezzi, managing director and head of emerging markets research at Barclay's Capital.

"Historians like to point out the fact that the past few hundred years may have been more of an exception than the rule," Ghezzi said. Until the 19th Century, China had the world's largest economy. "For most of world history, China and India had a huge percentage of the world economy." 

China currency report delayedChina manufacturing sector grows