China overtakes Japan as world’s second largest economy

For more than four decades, Japan flexed its economic might and ruled as the second biggest economy in the world, next only to the United State, and that changed today as Asia's rising sun was finally eclipsed by global factory powerhouse China.

Economists have been expecting the inevitable as Japan's economy continue to be plagued by deflation, weak consumer spending and rising debt that by the last accounting has already reached the level regarded as highest in the industrialised world.

The nation's latest economic data gave away shrinking figures as domestic demands continue to falter while the yen conversely shot up in the fourth quarter last year, leading analysts to declare that re-invigorating its economy would be difficult amidst prevailing effects of deflation.

Following decades of battling with poverty, China has overtaken Japan, which used to flood the world market with its mighty export products of automotive vehicles and consumer electronic goods that the communist state now partially dominates, with possibility of further dominance as Beijing accelerates its industrialisation.

Despite its relegation behind China, Japan remains economically richer on a per-capita-basis, according to estimates provided by the International Monetary Fund, which showed growth of 3.9 percent in 2010.

However, the nation's real GDP retreated by 1.1 percent in the three months leading to December of last year as Tokyo's auto subsidies wound up and spurred declining car sales, which was compounded by dwindling tobacco sales due to newly-imposed levy and a surging yen that discouraged higher export sales.

Its fourth quarter result showed that Japan achieved nominal GDP of $5.48 trillion last year while China surged ahead with its $5.88 trillion, pointing to Tokyo considerable success of bolting out of recession though analysts stressed that the country's recovery is still marred by volatility.

Tokyo's decision of priming up social services has only managed to eat up much of the nation's spending that prompted Standard and Poor's to downgrade Japan's credit rating from AA- to AA, with corresponding comments that "the government lacked a coherent strategy to ease a debt running near 200 per cent of GDP."

Still, many analysts are under the impression that Japan will showcase a turnaround by the first quarter of 2011, which they said would be mostly brought by the improving conditions of the global economy and as Japanese business operations ramp up their investments and offshore shipments.

Tokyo is even optimistic that the rising fortunes of China will aid its economic recovery, with one of its economic policymakers declaring "we welcome, as a neighbouring nation, that China's economy is advancing rapidly."

Source: http://www.ibtimes.com