China Surpasses Japan as World's No. 2 Economy

For the past three years, China has boasted that it was the world's second-largest economy -- a title held by Japan since 1968. Japanese economists normally downplay such claims but finally accepted today that their country had been eclipsed by its fast-growing neighbor.

According to official figures from Japan's Cabinet office, the country's gross domestic product grew 3.9 percent to $5.47 trillion in 2010. China, meanwhile, saw its GDP expand by about 10 percent last year to $5.88 trillion.

That's still small compared to the U.S., whose GDP measured $14 trillion in 2009. But after zooming past Germany, France, the U.K. and now Japan in just under a decade, China now has America in its sights. "It's realistic to say that within 10 years China will be roughly the same size as the U.S. economy," Tom Miller of GK Dragonomics, a Beijing-based economic consultancy, told the BBC. And by 2025, many experts predict that China's economy will be bigger than America's.

Of course, similar predictions were made about Japan in the 1980s. But its boom unraveled in the 1990s -- Japan's so-called "lost decade" -- following the collapse of the real estate sector. The country today still struggles with deflation, debt, high levels of youth unemployment and an aging population.

Japan has tried to play down its drop in the international league tables. Fiscal policy minister Kaoru Yosano said Japan wasn't interested in "competing for rankings but working to improve citizens' lives," according to The Associated Press. And by most measures, Japanese citizens still enjoy a far better standard of living than their Chinese neighbors. That's because as the world's most populous nation, China's wealth has to be shared among more people. Japan is still about 10 times richer on a per-capita basis.

However, Chinese incomes are rising. Some 1.4 million tourists from the mainland visited Japan last year, and a growing number of nouveau riche Chinese flash their wealth by buying brand-name Japanese goods, such as Canon cameras and Sony TVs. Yosano told reporters that he believed China's rapid growth was good news for the whole region, and that Japan could prosper from increased trade with the superpower. "We welcome, as a neighboring nation, that China's economy is advancing rapidly," he said. "This can become a foundation for the development of the regional economy."

China's response to its new-found status as economic titan has been mixed. A recent opinion piece in the China Daily, a state-run English-language newspaper, boasted of the vital role the country now plays in world affairs. "China has done more than any other economy to pull the world out of recession," it read, "and may remain an important engine of global growth for some years to come."

But other reports suggest that Beijing remains nervous taking on the global responsibilities that accompany economic power. "China Surpassing Japan to Become World's Second Biggest Economy -- But Not the Second Strongest," read a headline in the official People's Daily newspaper.