China overtakes Japan to become world’s second largest economy, figures show

News - Banking

Written by Ray Clancy

Monday, 16 August 2010 08:23

In a historic milestone, China has overtaken Japan in the second quarter of 2010 to become the world’s second biggest economy.

Japan’s nominal gross domestic product (GDP) for the second quarter totalled $1.288 trillion, less than China’s $1.337 trillion, the Japanese Cabinet Office said confirmed.

It is now being predicted that China will overtake the US, where annual GDP is about $14 trillion, as the world’s largest economy by 2027, according to Goldman Sachs and by 2020 according to PricewaterhouseCoopers.

China overtaking Japan ‘is a marker of its increasingly dominant role in the global economy. The resilience of China’s growth during the crisis enabled a number of other countries, particularly commodity exporting economies, to ride on its coattails,’ said Eswar Prasad, a senior fellow at the Brookings Institution and former head of the China division at the International Monetary Fund.

China overtook the US last year as the biggest automotive market and Germany as the largest exporter. The nation is the world’s number one buyer of iron ore and copper and the second biggest importer of crude oil, and has underpinned demand for exports by its Asian neighbours.

But quarterly comparisons between China and Japan are ‘a little tricky because they do not take account of different seasonal patterns between the two countries,’ warned David Cohen, head of Asian forecasting at Action Economics in Singapore.

With China’s growth surging 10.3% in the second quarter from a year earlier and Japan expanding 2%, the gap is going to widen in future, according to Shen Jianguang, a Hong Kong based economist at Mizuho Securities Asia. ‘It is not likely that Japan will retake the number two spot given the likely growth rates,’ he added.

Four of the world’s top 10 companies by market capitalization are from China, including PetroChina, Industrial & Commercial Bank of China, China Mobile Ltd. and China Construction Bank Corporation.

To compound the misery for Japan, Dong-A Ilbo, a South Korean daily, reported that South Korea will surpass Japan in economic output per capita in 2031. IHS Global Insight said that GDP per capita in Korea will reach $72,432 in 2031, exceeding Japan’s $71,788. Japan is struggling with its yen at a 15 year high against the US dollar.

Yet a little over a decade ago, China was the world’s seventh largest economy at prevailing exchange rates. It passed Germany to number three in 2007. For 2010, Germany is expected to rank fourth, France fifth and the United Kingdom sixth. The next emerging economy is Brazil, in eighth place after Italy.