China has overtaken Japan to become the world’s second-largest economy, the fruit of three decades of rapid growth that has lifted hundreds of millions of people out of poverty.
Depending on how fast its exchange rate rises, China is on course to overtake the United States and vault into the number-1 spot sometime around 2025, according to projections by the World Bank, Goldman Sachs and others.
China came close to surpassing Japan in 2009 and the disclosure by a senior official that it had now done so comes as no surprise. Indeed, Yi Gang, China’s chief currency regulator, mentioned the milestone in passing in remarks published on Friday.
“China, in fact, is now already the world’s second-largest economy,” he said in an interview with China Reform magazine posted on the website (www.safe.gov.cn) of his agency, the State Administration of Foreign Exchange.
Cruising past Japan might give China bragging rights, but its per-capita income of about $3,800 a year is a fraction of Japan’s or America’s.
“China is still a developing country, and we should be wise enough to know ourselves,” Yi said, when asked whether the yuan should become an international currency.
Is it sustainable?
China’s economy expanded 11.1 per cent in the first half of 2010, from a year earlier, and is likely to log growth of more than 9 percent for the whole year, according to Yi.
China has averaged more than 9.5 per cent growth annually since it embarked on market reforms in 1978. But that pace was bound to slow over time as a matter of arithmetic, Yi said.
If China could chalk up growth this decade of 7-8 per cent annually, that would still be a strong performance. The issue was whether the pace could be sustained, Yi said, not least because of the environmental constraints China faces.
In an assessment disputed by Beijing, the International Energy Agency said last week that China had surpassed the United States as the world’s largest energy user.
If China can keep up a clip of 5-6 per cent a year in the 2020s, it will have maintained rapid growth for 50 years, which Yi said would be unprecedented in human history.
The uninterrupted economic ascent, which saw China overtake Britain and France in 2005 and then Germany in 2007, is gradually translating into clout on the world stage.
China is a leading member of the Group of 20 rich and emerging nations, which since the 2008 financial crisis has become the world’s premier economic policy-setting forum.