It’s no secret that the financial crisis and global economic turmoil have negatively impacted economies around the world. And China is no exception.

Just last week, China’s government reported that its GDP growth during the third quarter was 9% year-to-year. That’s the country’s slowest quarter of economic growth since the second quarter in June 2003.

While I was expecting China’s economic growth to slow to the single digits this year, many analysts were surprised at how quickly China’s booming economy has cooled. But despite China’s GDP slowing from 11.4% in 2007 to 9% this year, the country’s economic growth still clocks in as the fastest of the world’s 20 biggest economies. (See also: "The Road to Recovery.")

And the U.S. and the majority of Europe, in contrast, are likely to experience negative economic growth in the next 12 months. That’s because these two nations waited too long to take action, guarantee their banking systems and cut interest rates, which caused the financial crisis to escalate and ultimately drag down the American and European economies.

So compared with other global economies, China is still well positioned to continue its robust economic growth—I’m expecting 7% in 2009—and to fare the financial crisis relatively unscathed.

Here’s Why

Over the past few weeks, I’ve been sharing with my China Strategy readers why China is offering the best opportunities for profits and why Chinese stocks will lead the global stock markets higher during the fourth quarter. Now, let me share these thoughts with you…

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First, unlike other countries and regions around the globe, China’s government intervened quickly and boldly with interest rate cuts immediately following the collapse of Lehman Brothers. Chinese policymakers realized the severity of the situation—despite the fact that China had limited downside exposure to Lehman’s failure.

Just four years ago, China was facing a near collapse of its banking industry. Policymakers learned from these experiences that in order to limit the losses it would incur from the credit fiasco, the country needed to take direct and quick action. By doing just that, the Chinese central bank estimated recently that the country had only lost about $50 billion, so far, from the global financial contagion. And that figure doesn’t even make a dent in China’s foreign reserve—it accounts for about 2.5% of China’s $1.9 trillion reserve.

Secondly, China has been more insulated from the financial crisis because it is far less leveraged than most countries. As the largest saver nation in the world, China has been less vulnerable to the global financial de-leveraging that has taken place around the globe in recent weeks. Plus, China is still in the early stages of developing its consumer finance industry. So its lack of bad debt has also kept the country more insulated from the credit crisis. (See also: "Why China, Why Now? 3 Top Stocks.")

Thirdly, inflation in China has finally cooled. In September, China’s inflation rate was at 4.6%—the slowest pace since June 2007. Much of the drop can be attributed to the sell off in commodities this year. And inflation could be as low as 3% next year. So with the inflation rate sitting at low levels, the Chinese government can now focus on keeping economic growth robust and has room to slash interest rates again in 2009. All of which bodes well for the Chinese stocks markets.

Speaking of Chinese stocks, my fourth point deals with the massive sell-off that we’ve seen in Chinese companies this year. Stock markets in Hong Kong and Shanghai have sold off the hardest and overshot on the downside this year: Hong Kong shares have plunged 48%, while Shanghai-traded stocks have plummeted 64%. At this point, I think the sell-off is overdone, and Chinese stocks are due for a correction to the upside.

As you can see, with its less-leveraged economy, active policymakers, low inflation rates, a focus on economic growth and low valuations…

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…China is well positioned for strong economic growth and has the ability to fare the continuing financial crisis relatively intact.  

A Shift in Power

Also, take into consideration that as global markets deteriorate, China is being pressured to modernize and develop its domestic capital markets. And thousands of overseas Chinese financial services professionals are returning to the Mainland with expertise to help China develop its capital markets, since it’s one of the few countries less vulnerable to the financial crisis.

That means the global balance of power is shifting in China’s direction. And there’s no turning back. As China continues to develop its financial system, the country will become a major financial power on top of being the "factory of the world." (See also: "Prepare for the China Stock Turnaround Now.")

That’s why China continues to offer the best investment opportunities right now. And I’ve been telling my China Strategy readers to take advantage of the market pullbacks as they’re presenting good entry points into fundamentally strong Chinese companies.

Right now, I’m recommending that my China Strategy readers invest in two of my favorite Chinese companies—China’s leading Internet search engine (think the Google of China!), and the number-one medical devices manufacturer in China. To learn how you can profit from China’s continued economic strength and its move to become a major financial power, join China Strategy risk-free today.