China ousts Japan as world’s No. 2 economy

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TOKYO | Japan lost its place as the world’s No. 2 economy to China in the second quarter as receding global growth sapped momentum and stunted a shaky recovery.

Gross domestic product grew at an annualized rate of just 0.4 percent, the government said Monday, far below the annualized 4.4 percent expansion in the first quarter, adding to evidence the global recovery is facing strong headwinds.

The figures underscore China’s emergence as an economic power that is changing everything from the global balance of military and financial power to how cars are designed. It is already the biggest exporter, auto buyer and steel producer, and its global influence is expanding.

China has been a major force behind the world’s emergence from deep recession, delivering much-needed juice to the U.S., Japan and Europe.

Tokyo’s latest numbers, however, suggest that Chinese demand alone may not be enough for Japan or other economic giants.

Japan is the canary in the gold mine because it depends very much on demand in Asia and China, and this demand is cooling quite a bit,” said Martin Schulz, senior economist at Fujitsu Research Institute in Tokyo. “This is a warning sign for all major economies that just focusing on overseas demand won’t be sufficient.”

China has surpassed Japan before in quarterly GDP figures, but this time, it’s unlikely to relinquish the lead.

China’s economy will almost certainly be bigger than Japan’s at the end of 2010 because of the huge difference in each country’s growth rates. China is growing at about 10 percent a year, while Japan’s economy is forecast to grow between percent 2 and 3 percent this year. The gap between the size of the two economies at the end of last year was already narrow.

Japan’s nominal GDP, which isn’t adjusted for price and seasonal variations, was worth almost $1.29 trillion in the April-to-June quarter compared with almost $1.34 trillion for China. The figures are converted into dollars based on an average exchange rate for the quarter.

Japan has held the No. 2 spot after the U.S. since 1968, when it overtook West Germany. From the ashes of World War II, the country rose to become a global manufacturing and financial powerhouse. But its so-called “economic miracle” turned into a massive real estate bubble in the 1980s before imploding in 1991.

What followed was a decade of stagnant growth and economic malaise from which the country never really recovered. Prime Minister Naoto Kan faces a long list of daunting problems: a rapidly aging and shrinking population, persistently weak domestic demand, deflation, a strong yen and slowing growth in key export markets.

In contrast, China’s growth has been spectacular, its voracious appetite fueling demand for resources, machinery and products from the developing world as well as rich economies like Japan and Australia. China is Japan’s top trading partner.

China’s rise has produced glaring contradictions. The wealth gap between an elite who profited most from three decades of reform and its poor majority is so extreme that China has dozens of billionaires while average income for the rest of its 1.3 billion people is among the world’s lowest.

Japan’s people still are among the world’s richest, with a per-capita income of $37,800 last year, compared with China’s $3,600. So are Americans, at $42,240; their economy still is by far the biggest.

Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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