Move over Japan: China is now No. 2 world economy

By Kyung Lah, CNN

TOKYO (CNN) -- Japan has slipped to the world's third-largest economy, falling behind the blistering speed of China's manufacturing growth, according to Japanese figures released Monday.

Japan's cabinet office released its nominal gross domestic product figures for 2010. Japan's economy was valued at $5.47 trillion dollars while China was at $5.88 trillion.

Japan's economy did grow in 2010, but only 3.9%, according to the government. China's is expected to grow more than 10%. At the speed China is growing, Japan's government predicts China will overtake the United States as the world's largest economy in less than 20 years.

China has expanded domestic industries and infrastructure, driven by a surge in exports. Multinational corporations have expanded there, taking advantage of low labor costs.

Japan, meanwhile, has been stuck in stagnation and deflation for two decades. Decisive economic policy has been lost in the revolving door of the country's top leader, with six prime ministers passing through in just five years. Looking ahead, Japan is facing a significant demographic shift, with the world's fastest aging population and one of the globe's lowest birth rates.

On the national debt issue, Japan's parliament is struggling to cap its GDP-to-debt ratio, which is nearing 200% -- the world's highest among developed nations.

The size of an economy does not tell the entire picture, however: Japan's GDP per head is around $40,000 while China's is $4,500. The standards of living remain remarkably different in the two countries. But the economic size of a country gives a snapshot of not just the financial influence of a nation, but its power in the world's political sphere. To top of page

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