China Becomes World No 2 Economy

China Becomes World No 2 Economy

TOKYO: Japan surrendered its 42-year ranking as the world`s second-biggest economy to China in 2010, after data on Monday showed a fourth-quarter contraction caused by weaker consumer spending and a strong yen.

While Japan was expected to fall behind a surging China in the year, the data underlined the weak state of a Japanese economy burdened by deflation, soft domestic demand and pressured by the industrialised world`s biggest debt.

“It is difficult for the deflation-plagued Japanese economy to achieve self-sustained growth,” said Naoki Murakami, chief economist at Monex Securities.

While China`s leap forward reflects a shift in economic power as the country transforms itself from poverty-hit communist state to global heavyweight, it highlights the need for Japan to re-energise its economy, analysts said.

Its post-war “economic miracle” put it at number two behind the United States for 42 years, but stagnation after its property bubble burst in the 1990s helped put booming China on course to supplant it this year.

However, Japan remains around 10 times richer on a per-capita basis, according to the International Monetary Fund.

Japan`s real gross domestic product slipped by an annualised 1.1 per cent in the Oct-Dec quarter as the expiration of auto subsidies hit car sales, a new tobacco tax sapped cigarette demand and a strong yen hurt exports.

While the first contraction in five quarters was not as severe as analyst expectations of a 2.4 per cent slide, according to a Dow Jones Newswires poll of economists, Japanese GDP data is subject to constant revision.

The economy grew 3.9 per cent in 2010, government data showed — its first annual growth in three years. But this was not enough to keep it ahead of surging China.

Nominal GDP of $5.474 trillion in 2010 put it behind China`s $5.879 trillion, the data showed

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