China is world's second economy

China overtakes Japan as world's second-biggest economy

Japan's economy was worth $5.474 trillion (£3.414 trillion) at the end of 2010, figures from Tokyo have shown. China's economy was closer to $5.8 trillion in the same period.

World's 10 biggest economies

• US
• China
• Japan
• Germany
• France
• UK
• Italy
• Brazil
• Canada
• Russia

Japan has been hit by a drop in exports and consumer demand, while China has enjoyed a manufacturing boom.

At its current rate of growth, analysts see China replacing the US as the world's top economy in about a decade.

"It's realistic to say that within 10 years China will be roughly the same size as the US economy," said Tom Miller of GK Dragonomics, a Beijing-based economic consultancy.

The US economy is currently almost three times the size of the Chinese economy in dollar terms. The UK's economy is estimated to be the world's sixth largest.

Japan played down the significance of the shift in the economic league table, and the fact that it has been replaced as the second-largest economy for the first time in more than four decades.

"As an economy, we are not competing for rankings but working to improve citizens' lives," said Economics Minister Kaoru Yosano.

The minister added that China's booming economy was welcome news for Japan as a neighbouring country.

China is now Japan's main trading partner and is increasingly important to companies such as electronics firm Sony and carmakers like Honda and Toyota.

However, Mr Yosano said that Japan needed to watch closely "risks from overseas economies and currency moves".

Negative demand

The yen has been strengthening against other currencies, recently touching a 15-year high against the dollar, and the fear is that the currency's gains may hurt foreign demand for Japanese products.

According to the latest figures from Tokyo, Japan's economy contracted at an annualised rate of 1.1% in the final three months of 2010. Growth declined 0.3% from the previous quarter.

It was the first time in five quarters that the economy had contracted and it was caused by a dip in domestic and export demand, analysts said.

Consumer spending fell 0.7% in the final three months of 2010, the figures showed.

Analysts said that while demand had been picking up since the start of the year, there would not be a sudden revival in Japan's economic fortunes.

Not least because government plans to boost consumer spending by giving incentives to buy products such as consumer durables had either finished or were about to end.

"The main reasons for the contraction are the expiry of government stimulus measures and negative external demand," said Takeshi Minami, chief economist at Norinchukin Research Institute.

"It is going to be difficult for the economy to emerge from a lull in the January-March period.

"We are unlikely to see the economy worsen, but the recovery will not be strong enough for people to actually feel it is happening."

'Lost decade'

Japan has been struggling to come to terms with what many analysts call the "lost decade" of the 1990s when a property market and asset crash turned the economy on its head.

Domestic demand tumbled and exports also dropped as consumers looked for cheaper products from other emerging markets, and China in particular.

Today, Japan's biggest headaches are an ageing population that is spending less, and a workforce that is relatively expensive and inflexible to operate.

By contrast, the majority of China's growth has been funded by a long-running manufacturing boom and the subsequent expansion of its domestic industries and infrastructure.

"There was an emphasis on infrastructure," said Duncan Innes-Ker of the Economist Intelligence Unit (EIU) in Beijing.

"They were building way ahead of where people thought the demand would be. And because the infrastructure was there, companies went there."

Whole picture

Most economists agree that while China as a whole is growing, and the average person is getting wealthier, comparing only the size of its economy to Japan's does not paint an accurate enough picture.

"Most people in China are still poor, more people live in the countryside than in cities," said Mr Miller of GK Dragonomics.

"The average Japanese person is much much richer than the average Chinese person."

The International Monetary Fund estimates that GDP per head of the population is almost $34,000 in Japan, while in the People's Republic of China it is just over $7,500.

Dave Lindahl Scam

Japan Economy 2010 Goes slow down

Japan GDP figures show sharp slowing of economic growth.

Japan relies on exports for growth but the strong yen is making that more difficult

Economic growth in Japan weakened significantly in the last financial quarter, official figures show.

Between April and June this year gross domestic product - the sum of the nation's goods and services - grew by 0.1%, much lower than expected.

Analysts say the country's export-led recovery appears to be faltering as the value of the yen appreciates.

Germany and the US recently reported far superior GDP figures for the same period.

Germany registered a 2.2% rise, while the US economy grew at an annualised rate of 2.4%.

The BBC's Roland Buerk in Tokyo says Japan remains one of the wealthiest and most prosperous countries in the world, but the trajectory of its economy has been clear for years.

World Bank figures show that in the first eight years of this century Japan's economy expanded by just 5% while China's grew by 261%.

The GDP figures give further credibility to the widely held belief that China will soon overtake Japan as the world's second biggest economy.

That will become clearer early in 2011, when GDP figures for the whole of 2010 become available for each country.

Japanese shares closed lower after the announcement, with the benchmark Nikkei 225 index falling 0.6% to 9,196.67.

Read Full Story >>

Japan economy 2010

Japan economic growth slows down.

Economic growth in Japan weakened significantly in the last financial quarter, official figures show.

Between April and June this year gross domestic product - the sum of the nation's goods and services - grew by 0.1%, much lower than expected.

Analysts say the country's export-led recovery appears to be faltering as the value of the yen appreciates.

Japan's close rivals, Germany and the US, recently reported far superior GDP figures for the same period.

Germany registered a 2.2% rise, while the US economy grew at an annualised rate of 2.4%.

World Bank figures show that in the first eight years of this century Japan's economy expanded by just 5% while China's grew by 261%.

The GDP figures give further credibility to the widely held belief that China will soon overtake Japan as the world's second biggest economy.

That will become clearer early in 2011, when GDP figures for the whole of 2010 become available for each country.

Japanese shares closed lower after the announcement, with the benchmark Nikkei 225 index falling 0.6% to 9,196.67.

Dr Seijiro Takeshita, director of Mizuho International, said Japan's government had made a mistake in its policy choice.

"The problem for Japan was they were going for short-termism as far as policy was concerned. They were trying to put a bandage over a deep wound," he told the BBC.

"Private consumption didn't take off because our economy is still so dependent on external demand or exports.

"What they should have done is made much more transformation into the domestic side, which would have induced much more spending and most importantly created more jobs in the Japanese workplace."

Japan has relied on exports for growth, but the problem is that the yen has been rising, making Japan less competitive abroad, the BBC's Roland Buerk says.

For Full Story

Japan's economy rebounds in February

Japan's economy is leaping to life, with surging exports to China and the United States and rising expectations for robust growth throughout the coming year.

As China and much of Asia stormed back from recession in the past year, Japan had stood out as the weak sister in the region, with stagnant employment, creeping deflation and a humiliating quality-and-credibility scandal at Toyota, the country's largest and most-respected company.

But data released Wednesday by the Finance Ministry shows that, when the world is in a buying mood, the world's second-largest economy has lost none of its ability to export high-quality consumer electronics, automobiles, heavy equipment and assembly-line machinery.

Exports in February increased at the fastest pace in three decades, jumping 45 percent from a year ago, as shipments to all regions of the world rose, according to the government. Exports have risen sharply for three consecutive months.

Unemployment is also beginning to fall, as consumer confidence rises, along with demand for services and imported goods.

As in January, the fastest growth was in Japan's exports to China, its largest trading partner, and to other parts of Asia. These shipments rose 56 percent.

The pace of increasing exports has led some major Japanese manufacturers, such as Mitsubishi Electric, to reverse earlier estimates of annual operating losses and predict substantial increases in net income. Komatsu, the world's second-largest maker of earth-moving equipment, predicted a 50-percent increase in sales to China in the coming year.

As important, exports to the United States are also rising rapidly from disastrous declines in 2009, when many Japanese companies found it all but impossible to sell cars and electronics to recession-panicked U.S. consumers.

Exports to the United States in February rose 50 percent over the previous year -- and automobile sales rose by a record 130 percent.

Finance Ministry officials told the Kyodo news service that the latest car sale figures suggest that Toyota's quality problems have not harmed overall exports of Japanese cars and other manufactured products to the United States.

It remains unclear how Toyota, after several rounds of massive recalls and a steady drip of bad publicity, will fare this year in the U.S. and other overseas market.

Japan still world's 2nd largest economy

Japan, China in Race to Be World's No. 2 Economy.

Retaining its position as the world's second largest economy, Japan's economy grew at a faster-than-expected pace of 1.1% in the last three months of 2009.

China, the fastest growing large economy, clocked a growth rate of 10.7% in the quarter ending December 31, 2009, bringing it within sniffing distance of surpassing Japan as the world's second largest economy.

The Japanese cabinet office today said the "island nation's economy, which is primarily export-driven, rose 1.1% in the fourth quarter of 2009".

On an annual basis, the country's gross domestic product (GDP) expanded at a much higher pace at 4.6%.

For the whole of 2009, the Japanese economy shrank 5% and is valued at 474.92 trillion yen (about US$5.1 trillion), according to official data.

Last month, China said its 2009 GDP was "33,535.3 billion yuan (about US$4.91 trillion), up by 8.7% at comparable prices".

Severely hit by the global financial meltdown, the Japanese economy has slumped into one of its worst recessions in recent history. This has brought down the GDP gap (in US dollar terms) between Japan and China to a narrow range.

Japan climbed out of recession in the June quarter of 2009 after clocking a growth of 1.3%.

Meanwhile, the better-than-expected Japanese growth in December quarter was mainly driven by better exports and the effects of stimulus measures.

In 2009, the Chinese economy expanded at a stunning rate of 8.7%, primarily on the back of improved domestic output driven by government stimulus and a tightly held yuan.

Despite the GDP rising at a good rate in the December quarter, the export-driven Japanese economy is expected to see sluggish growth in the near term.

Going by the latest figures, the Japanese economy witnessed zero growth in the September quarter of 2009. Interestingly, preliminary estimates had pegged the GDP to expand at 1.2% for that period. The figure was later revised to 0.3%.

To bolster the recession-hit economy, Japan had unveiled stimulus measures worth over US$130 billion.