China outshines Japan's economy

Japan confirmed that China’s economy surpassed its own as the world’s second largest in 2010 and said a late-year downturn was Japan’s first quarterly contraction in more than a year.

Japan’s real GDP expanded 3.9% in the calendar year in the first annual growth in three years, but it wasn’t enough to hold off a surging China.

Japan’s nominal GDP last year came to 5.4742 trillion US dollars, less than China’s total of 5.8786 trillion US dollars, the Cabinet Office said.

Gross domestic product shrunk at an annualised rate of 1.1% in the October-December quarter, a sharp reversal from a revised 3.3% expansion in the third quarter, the government said.

A slowdown in exports and weaker consumer demand at home led to the unsurprising downturn, which is expected to be temporary.

The result was better than Kyodo news agency’s average market forecast of an annualised 2.2% decline.

China was acknowledged last year as having grown to the world’s second-largest economy, but the Japanese data confirming it were not available until today.

The switch underscores the nations’ stark contrasts: China is growing rapidly and driving the global economy, while Japan is struggling with persistent deflation, an ageing population and ballooning public debt.

Prime minister Naoto Kan has pledged to revive the economy and make major reforms in the country’s tax and social welfare systems.

His approval ratings are eroding quickly, however, as voters question his government’s ability to lead the country through its pressing problems.