A tale of two economic giants – What does it mean now that China has overtaken Japan?

AChina rises, Japan stalls. The biggest news in global media this week was China officially overtaking Japan as the world’s second largest economy. A New York Times writer gushed, “The milestone, though anticipated for some time, is the most striking evidence yet that China’s ascendance is for real.”

But what’s the real story behind those numbers?

A Chinese worker works on a Lenovo LED production in Beijing. CFP Photo

Bloomberg reported Tuesday that China’s second quarter gross domestic product (GDP) surpassed Japan’s. The report cited Japanese cabinet officials saying that Japan’s nominal GDP for the second quarter totaled $1.288 trillion, less than China’s $1.337 trillion.

Japan’s annual GDP is $5.1 trillion, while China’s is just under $5 trillion.

Bloomberg said comparing the two countries is tricky. While China’s output was larger in the fourth quarter of 2009, Japan’s GDP rebounded to exceed China’s in the first quarter of this year, according to Bloomberg data.

Different calculations paint different pictures of the situation. Using purchasing power parity calculations to adjust for exchange rate differences, China overtook Japan in 2001, according to the IMF.

China overtook the US last year as the biggest automobile market and Germany as the largest exporter. The nation is the world’s No. 1 buyer of iron ore and copper and the second biggest importer of crude oil.