China Becomes World’s Second-Biggest Economy

By Tim Wrigth | March 11, 2011

When final 2010 figures were tallied, China at long last surpassed Japan to become the world’s second-largest economy. Japan’s economy was worth $5.474 trillion at the end of 2010. China’s economy was closer to $5.8 trillion. After nearly three decades of phenomenal growth, at its current rate, experts see China replacing the U.S. as the world’s top economy in roughly a decade.

The U.S. economy is approximately three times the size of the Chinese economy. However, while Chinese growth has been truly impressive in recent decades, with the rapid overtaking of Japan—and in recent years passing Germany, France and Great Britain—China remains a very poor country in per capita terms.
The International Monetary Fund estimates that GDP per head of the population is almost $34,000 in Japan, while in China it is roughly $7,500. Here China is more on par with nations like Algeria, El Salvador and Albania. In the U.S. per capita income is estimated at $46,000.

Eswar Prasad, Tolani Senior Professor of Trade Policy at Cornell University and author of Emerging Markets: Resilience and Growth Amid Global Turmoil says:

“There are virtually no historical parallels for a country that is so large and dominant in absolute terms and yet lags far behind many other countries in terms of per capita income and other indicators of development. There is still a yawning gap in per capita income levels between China and the advanced economies and, even at present growth trajectories, it will take a generation for China to achieve the level of development of advanced economies.”

However, there is little doubt that China is reshaping the global economy, which is quite remarkable for an economy with such a low per capita income. Although its economy is still only one-third the size of America’s, China passed the U.S. last year to become the world’s largest market for passenger vehicles.
General Motors says it sold more cars and trucks in China last year than it did in the U.S. for the first time in its 102-year history. The company sold 2.35 million vehicles in China. That’s about 136,000 more than it sold in the U.S. China also passed Germany last year to become the world’s biggest exporter.
Scores of global companies are making a more aggressive push into China. However, this does not come without risk. Dan Watson, Coatings World’s China correspondent returns this month to talk about intellectual property theft. We all know it is a serious issue. Dan wonders if American companies are turning a blind eye to the IP theft issue in exchange for profits. It’s an interesting conversation piece. You can read Dan’s insights in this month's China Report. As always, let me know your thoughts on the issue and I will publish them in a future issue.