CHINA’S REMARKABLE rise over the past 30 years was underlined yesterday when fresh data from Tokyo confirmed what figures have been showing for several months, that China overtook Japan as the world’s second largest economy in 2010.

The data marks a seismic shift in terms of economic muscle and political influence in the world’s fastest growing region.

Japan was the world’s second-biggest economy after the United States for 42 years, and this development will bring pressure on prime minister Naoto Kan to halt further slippage.

The figures are significant because, while China’s economy has on several occasions overtaken Japan’s based on quarterly data for the two countries, this is the first time that China has done so on a full-year basis – the yardstick for the global rankings.

Gross domestic product (GDP) in Japan contracted 1.1 per cent in the fourth quarter of last year, although the full-year figure is a much healthier 3.9 per cent expansion.

The fourth quarter figures were affected by the strength of the yen, which hit exports while car sales fell due to the end of subsidies and a new tobacco tax exerted pressure on cigarette sales.

Despite falling behind China, the figures put Japan at the head of the major developed economies in terms of economic growth last year – Germany grew by 3.6 per cent, the United States by 2.9 per cent and Britain by 1.4 per cent.

However, the outlook for Japan is less than optimistic as it struggles with debt and deflation.

China, meanwhile, continues to accelerate with GDP rising sharply in the last quarter of 2010 to expand 10.3 per cent for the year, although the economy is struggling with inflationary pressures.

There are worries that China will tighten monetary policy to control inflation, which may bring about a “hard landing” this year.

If Beijing is forced to slow growth aggressively this could put the squeeze on domestic demand, something that is helping buoy the global economy, including Japan.

However, most analysts are confident there will only be marginal tightening.

Ultimately, Chinese expansion is good for the region, and along with the recovery in the US, is expected to help Japan’s economy recover in the first quarter.

“We are pleased to see China’s economy rapidly developing,” Japan’s economy minister Kaoru Yosano said.

“We are not engaging in economic activities to vie for ranking but to enhance people’s lives. From that point of view, we welcome China’s economic advancement as a neighbouring country,” Mr Yosano added.