Once was the case that developing countries ran deficits on their trade accounts because their importing of stuff way outstripped their ability to produce and sell stuff that the rest of the world wanted.

In short, to grow they required imports of equipment and technology, and their crude, underdeveloped production sector was capable of exporting little.

Even if they had oodles of resources, it was the foreign investor who earned all the bucks from exploiting them - people such as the Africans getting little in the way of offshore revenue from the sale of their minerals.

In this standard development model, the flip-side of that trade deficit was a big surplus on the capital account as loans and direct foreign investment poured into the country from the sophisticated, developed world, so long as the recipient economy was being transported into the developed world.

This is the economic model we were all taught in Economics 101 - that it was "normal" for young, undeveloped countries to run deficits year after year, because the big investment in infrastructure and industry would eventually pay off in the form of exports and balance of payment current account surpluses.

This is the theory of competitive advantage - countries invest in those areas where they are competitive, or at least potentially most competitive, and through such specialisation we all go to some kind of economic nirvana.

What the hell happened? These days, it's the developing countries that run the trade surpluses and end up exporting capital to the modern economies (commonly as loans to their banks or direct investment in, or ownership of, businesses or land). So much for the theory that a young nascent economy needs to attract lots of foreign capital to get on the development path. Global imbalances these days are more about the developed, mature economies having a screaming need for extra capital to keep their populations in the fashion they've become accustomed to.

Developing countries increasingly seem to have little problem funding their development. A bizarre demonstration of this new age of economic development are the calls from the West for the consumers of poorer countries to "spend more" because they are vital markets for us in the West to sell to.

Take New Zealand as an example, a so-called developed country without the excuse of having to import heaps of investment funds to make its economy tick. On the face of it, we appear to have changed from needing capital to build our productive base to an endemic need to use other people's money.

The capital we borrow from abroad seems primarily to feed our fetish for property.

Our net foreign debt position has grown interminably in the last 10 years (see graph).

So that's the profile of a debt-drugged, modern economy.

Now consider the "model" of one of these new-age developing wunderkinds; let's take China. The economy propels itself pronto into a trade surplus - rather than running deficits forever as we Kiwis have perfected.

It does this by playing to its comparative advantage - a labour force that in relative terms will work for peanuts. Now the problem is the labour force isn't skilled in modern production methods so that requires a heady level of investment in education so they can move from the paddy fields to the manufacturing sector.

But as well, it needs encouragement of foreign investment in production facilities in China so the best practice foreign technologies see it as a no-brainer to manufacture in China. The only education that's considered relevant is on-the-job-training , and the competition for jobs ensures that new staff learn fast and don't drop the ball.

It is a match made in heaven - modern capital and production techniques from abroad. Whether it be Japanese, Taiwanese, European or US firms, it doesn't matter - they have no excuse not to invest in China. The Government is left to focus on building an infrastructure to die for - power generation and transmission, roads, airports. You name it, they build it.

Let's take an example. Apple design the iPod, yet it is manufactured by a Taiwanese company in mainland China in a facility that employs 200,000 people. The factory also makes Sony PlayStations and Nokia cellphones, when there's a lull in iPod orders.

Who cares that China only accrues 5 per cent of the value of an iPod? That's 5 per cent of a hell of lot. And so this formula is replicated across all manner of the world's manufactured products and the Chinese economy catapults from economic oblivion to being a powerhouse, accumulating foreign currency reserves faster than it can think of ways to spend it.

Meanwhile we are left in the dust, borrowing to develop, borrowing once we're developed, and presumably borrowing to fund the retirement fund as our population ages. What's with that?

Gareth Morgan is director of Gareth Morgan Investments.