【10.7.31 CNN】China closer to becoming second-largest economy

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By Mure Dickie in Tokyo and Jamil Anderlini in Beijing, FT.com
http://edition.cnn.com/2010/BUSINESS/07/31/china.economy.growth.ft/index.html?iref=allsearch#fbid=ooFYmyaoDJk


Some economists believe China has already overtaken Japan to become the world's second largest economy.


A senior Beijing official's reference to China as the "world's second-largest economy" has sparked excited speculation that Asia's new powerhouse may have already reached a long-looming milestone by surpassing Japan.
China's rapid recent growth has made it increasingly likely that its gross domestic product, in US dollar terms, will be larger this year than Japan's.
However, the vagaries of international currency movements mean such a result is far from assured.
Observers eagerly awaiting what will be a symbol of shifting global economic power on Friday seized on a remark by Yi Gang, director of the State Administration of Foreign Exchange, about China's growth prospects.
"China is in fact already the second-biggest economy. With the expansion of the economic base, the growth rate should certainly gradually slow down," Mr Yi, who is also deputy central bank governor, said in an interview on the Safe website.
However, Mr Yi's comment fell far short of formal seizure of a title that Japan has held for just over four decades, especially given that he did not specify whether he was talking about China's GDP at market prices or in purchasing power parity terms.
In PPP terms, often a more telling measure of economic weight, China has already been the second-largest economy for years.
China-based economists point out that Tokyo reports detailed and relatively accurate economic data. Beijing's sketchier numbers potentially under-report its economy by as much as 20 per cent, meaning China may have really been number two for some time, even in dollar terms.
Even using official data, the baton is seen as likely to be decisively passed this year. In 2009, Japan's gross domestic product was worth about $5,080 billion, while Chinese GDP was initially reported to be not far behind at about $4,900 billionn.
"Mr Yi is stating the obvious; if China has not already overtaken Japan at this moment in time then it will very soon," said Arthur Kroeber, managing director of Dragonomics in Beijing.
"This has news value but no economic value," said Dong Tao, chief China economist at Credit Suisse.
"At some point this year China's economy will overtake Japan's as world's second-largest economy in nominal dollar terms; the only thing potentially stopping it right now is the strength of the yen."
Despite Mr Yi's apparently throw-away remark, Beijing is also unlikely to want to make too much of a fuss about its new status.

"China needs to adjust to its new status but it is not quite ready for it and would like to put it off as long as possible," Mr Kroeber said.