Shanghai, Feb. 14: China has become the world’s second largest economy, with Japan surrendering its 42-year-old ranking after its economy shrank in the final months of 2010.

China has claimed since as early as 2008 that it either was, or was imminently poised to become, the world’s second-largest economy.

Until now, Japanese economists have patriotically refuted the Chinese figures. However, weak consumer spending and a strong yen saw Japan’s gross domestic product (GDP) fall by an annualised rate of 1.1 per cent in the final quarter.

That allowed China to pull ahead with a GDP total of $5.88 trillion for 2010, on a non-adjusted nominal dollar basis, compared to $5.47 trillion for Japan.

By comparison, the US recorded GDP of $14 trillion in 2009, but experts have predicted that after sweeping past Germany, France, the UK and now Japan, China will catch up with the US by as early as 2030.

Similar predictions were made for Japan’s prospects during the 1980s. However, after more than a decade, being overtaken by China reflects Japan’s declining political and economic power.

Once China’s greatest enemy, and rival, Japan’s prospects are now dependent on ties with its bigger neighbour, the government admitted.

“The important issue for Japan is how to incorporate [and benefit from] China’s growth,” said Yukio Edano, the chief cabinet secretary, pointing out that Japan’s per-capita wealth is still ten times that of China’s, perhaps giving Japan the ability to invest in, and profit from, Chinese growth.

Kaoru Yosano, the fiscal policy minister, added: “We welcome, as a neighbouring nation, that China’s economy is advancing rapidly. This can become a foundation for the development of the regional economy.”

He added: “We are not managing the economy to compete for ranking, but to enhance people’s lives.”

For China it was a triumphant moment. “China has done more than any other economy to pull the world out of recession, and may remain an important engine of global growth for some years to come,” stated an opinion piece in the China Daily, the official English-language newspaper.

China’s global power has grown considerably in recent years, but the communist party remains nervous about assuming the mantle of an economic superpower, especially given China’s continuing development.