China leapfrogs Japan in world economic league

CHINA is set to overtake Japan as the world's second-largest economy, behind the US, after better-than-expected GDP growth of 8.7 per cent in 2009.

China's expansion accelerated towards the end of the year, data yesterday revealed, up 10.7 per cent in the final quarter on the same period a year earlier. In comparison, Japan's economy is widely expected to have contracted by 6 per cent when it reports its final-quarter GDP figures next month.

China has come up with a "very smart policy stimulus" during the recession, said Goldman Sachs chief economist Jim O'Neill. "They have replaced exports with domestic demand, both consumption and investment … China has become more important as America (has become] less, which is what the world needs," he said.

China also benefited from an aggressive government-driven stimulus policy, quickly enacted in November 2008. However, Michael Pettis, at Peking University, said there was a "real concern about the quality of the growth and what will happen when that stimulus is withdrawn".