China clambers to the second spot

Has China overtaken Japan as the second largest economy in the world? Yi Gang, director of state administration of foreign exchange, had casually remarked that China has moved beyond Japan. While it is not surprising that China has moved past Japan — the details can wait — what will remain surprising is that Japan had held on to its position despite a decade of economic stagnation.

China is also a reluctant economic superpower, yet to adjust itself to its new position. Western experts feel that Beijing would underplay the superpower status because that would require policy responses, for example on the currency exchange front, which it is not willing to do. Interestingly, the combined size of the Chinese and Japanese economies is less than that of the US alone. And this despite the US’ recessionary blues. The US’ GDP stands at around $13,000 billion, while that of China and Japan is a little over $5,000 billion each. It is no wonder that the prudent Chinese are not shouting from rooftops. They are aware of the gap between the largest and that of the second largest economy — it is quite wide and very real.