China overtakes Japan as world second largest economy

| Tuesday August 17, 2010 00:00

Gross domestic product grew at an annualized rate of just 0.4 percent, the government said yesterday, far below the annualised 4.4 percent expansion in the first quarter and adding to evidence the global recovery is facing strong headwinds.

The figures underscore China's emergence as an economic power that is changing everything from the global balance of military and financial power to how cars are designed. It is already the biggest exporter, auto buyer and steel producer, and its global influence is expanding.

China has been a major force behind the world's emergence from deep recession, delivering much-needed juice to the US, Japan and Europe. Tokyo's latest numbers, however, suggest that Chinese demand alone may not be enough for Japan or other economic giants.

'Japan is the canary in the goldmine because it depends very much on demand in Asia and China, and this demand is cooling quite a bit,' said Martin Schulz, senior economist at Fujitsu Research Institute in Tokyo. 'This is a warning sign for all major economies that just focusing on overseas demand won't be sufficient.'

China has surpassed Japan in quarterly GDP figures before, but this time it's unlikely to relinquish the lead.

China's economy will almost certainly be bigger than Japan's at the end of 2010 because of the huge difference in each country's growth rates. China is growing at about 10 percent a year, while Japan's economy is forecast to grow between 2 to 3 percent this year. The gap between the size of the two economies at the end of last year was already narrow.

Japan's nominal GDP, which isn't adjusted for price and seasonal variations, was worth $1.286 trillion in the April-to-June quarter compared with $1.335 trillion for China.

Faced with feeble growth, Japan's government is considering fresh stimulus measures to support the economy, likely including ways to boost consumer spending on eco-friendly products, Kyodo News agency said late Monday, quoting unnamed government sources.

Japan has held the No. 2 spot after the US since 1968, when it overtook West Germany. From the ashes of World War II, the country rose to become a global manufacturing and financial powerhouse. (AP)