China: The world’s new number two economy?

With the revision of China’s 2008 GDP to $4.5 trillion, the nation now is poised to overtake Japan as the world’s second largest economy.

With 8 percent growth forecast for 2009 and Japan’s economy, which stood at $4.9 trillion last year, emerging from its worst recession since World War II, economists predict that China soon will stand second only to the United States in total economic output.

“It is only a matter of time before China’s total economic volume surpass that of Japan given China’s robust growth,” Xu Lianzhong, a researcher with the National Development and Reform Commission, told state-run media.

If it overtakes Japan, it will complete a dramatic five-year economic rise that saw it leap-frog the economies of the United Kingdom in 2005 and Germany in 2007.

The power of such rankings, however, is more emotional than substantive. China’s explosive growth reflects newly created wealth, not a zero-sum game: The gains of China were not the cause of equivalent economic losses among the world’s top economies. Indeed, the growth of China has been a boon to all developed economies across the world.

Still, the emotional weight of such rankings is strong. Whether China’s economy has already eclipsed Japan may be subject to debate, but the opening of the Wuhan-Guangzhou bullet train line this weekend gives China sole claim to the fastest trains in the world – once a point of pride in post-War Japan.

And on Sunday, China’s Premier Wen Jiabao made his strongest statement yet to state media that China won’t bow to foreign pressure to float the value of its currency – which implicitly suggests China now has the clout to weather criticism from its top trading partners.

So once it overtakes Japan, will it also overtake the U.S.? Most economists say yes – but not anytime soon.

China’s total economy is still one-third the size of the U.S., and conservative estimates don’t see its total output eclipsing the U.S. until around 2025.

Also important to keep in mind what Xu Lianzhong, from the National Development and Reform Commission, told China state media: “What matters more is the per capita figure, and in the case of China, the total figure has to be divided by 1.3 billion.”

Even if China has already eclipsed Japan in total economic output, the average Chinese income in 2008 was $3,200 – compared to $38,000 in Japan.

[Via http://business.blogs.cnn.com]