Business

China firmly world's No. 2 economy

Highway construction workers took a lunch break earlier this month in Tianjin, China. The nation's GDP figures have surpassed Japan's, which had been No. 2 since 1968.
Highway construction workers took a lunch break earlier this month in Tianjin, China. The nation's GDP figures have surpassed Japan's, which had been No. 2 since 1968. AP

TOKYO — Japan lost its place as the world's No. 2 economy to China in the second quarter as receding global growth sapped momentum and stunted a shaky recovery. Gross domestic product grew at an annualized rate of just 0.4 percent, the Japanese government said Monday, far below the annualized 4.4 percent expansion in the first quarter.

China has surpassed Japan in quarterly GDP figures before, but this time it's unlikely to relinquish the lead. China's economy almost certainly will 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 2 percent to 3 percent this year.

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.

Japan has held the No. 2 spot after the United States since 1968, when it overtook West Germany.

But it has stagnated in the past two decades while China's growth has been spectacular, with its voracious appetite fueling demand for resources, machinery and products from the developing world as well as rich economies like Japan and Australia. China is Japan's top trading partner.

China's rise has produced glaring contradictions. China has dozens of billionaires — an elite who profited most from three decades of reform — while average income for the rest of its 1.3 billion people is among the world's lowest. Japan's people remain among the world's richest, with a per capita income of $37,800 last year, compared with China's $3,600. For Americans, at $42,240, their economy is still by far the biggest.

"We should be concerned about per capita GDP," said Kyohei Morita, chief economist at Barclays Capital in Tokyo. China overtaking Japan "is just symbolic," he said. "It's nothing more than that." But the symbolism may be exactly the "wake-up call" Japanese leaders need, said Martin Schulz, senior economist at Fujitsu Research Institute in Tokyo. "Japan is always strangely inward looking," he said. "And nobody is doing anything about it."

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