International

China Surpasses Japan As No. 2 Global Economy

Chinese electronics worker

A Chinese worker on a Lenovo Electronic Technology Co. factory assembly line in Shanghai, August 2010.  Eugene Hoshiko/AP hide caption

itoggle caption Eugene Hoshiko/AP

Baseball great Satchel Paige famously said, "Don't look back, something might be gaining on you." For the U.S. economy, that something would be China.

The latest economic data indicate China has officially become the world's second-largest economy, recently surpassing Japan because of the Japanese economy's unexpectedly weak 0.4 percent growth in the second quarter.

In strictly nominal terms (not taking into account purchasing power) the U.S. economy came in at $14.256 trillion in 2009. Japan's was at $5.067 trillion and China was at $4.909 trillion.

Experts say China actually has roared ahead of Japan before in terms of its total of goods and services produced but that Japan was able to retake the lead.

This time is different, however, they say, because Japan's economy appears relatively stalled while China is experiencing much stronger growth.

It's long been expected that China would pass Japan and, eventually, the U.S. As a developing nation of more than 1.32 billion people, China has emerged as the world's factory, making it an exporting powerhouse.

Because it has much still underutilized capacity in terms of its potential labor force, has growing consumer demand and has cast levels of savings to tap, China has much greater fuel for stronger growth going forward than the U.S.

Meanwhile, the Japanese had their lost decade of the 1990s during which the nation had essentially little to no economic growth after its credit bubble burst and Japanese businesses and consumers spent the better part of a decade paring back high debt levels (sound familiar?)

China is expected to eventually become the world's largest economy, perhaps in 2030 though it could happen sooner if the U.S. economic growth underperforms.

There is one consolation, however. At least the U.S. economy should still be larger than Japan's.

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