China Passed Japan to No. 2 Spot Says Currency Chief
China has overtaken Japan to become the world’s second-largest economy, said China’s currency chief Yi Gang in an interview published Friday in China Reform magazine.
Even according to conservative estimates China had come close to surpassing Japan in 2009. Depending on the precise rate at which its GDP grows and its currency appreciates China will also overtake the United States between 2018 and 2025 to become the world’s top economy.
China’s current position is the result of sustained economic growth that has only been matched by that of South Korea between 1962 and 2007. During the first half of 2010 China’s GDP grew 11.1%. The growth for the entire year is expected to be about 10.5%.
China has averaged over 9.5% annual growth since it reformed its economy in 1978 to reduce central planning and open up to free market forces. The only other country to have matched China’s sustained growth spurt over a period of 42 years is South Korea which expanded at an average rate of 8% between 1962 and 2009 when its GDP reached $28,000 on the basis of purchasing power parity (PPP). As of 2009 China’a per capita GDP (PPP) was about $6,600 according to the CIA and the World Bank, placing it about 100th among 194 nations. On the same basis, the per capita GDP of the United States and Japan are, respectively, $46,400 and $32,600.
China’s economy overtook Britain and France in 2005 and Germany in 2007. It has become a key member of the G-20 group of economically influential nations which has emerged as the world’s economic policy-setting forum since the 2008 crisis.
However Yi said Beijing had no timetable to make the yuan a freely exchanged global currency.
“China is very big and its development is unbalanced, which makes this problem much more complicated. It’s difficult to reach a consensus on it,” Yi said. “We must be modest and we still have to keep a low profile. If other people choose the yuan as a reserve currency, we won’t stop that as it is the demand of the market. However, we will not push hard to promote it.”
At the same time China has encouraged the use of the yuan internationally by allowing trade to be settled in renminbi and using Hong Kong as an offshore center for yuan circulation.
“Don’t think that since people are talking about it, the yuan is close to becoming a reserve currency,” Yi said. “Actually, it’s still far from that.”
China has been taking pains to prevent a sharp, speculative appreciation of its currency.
China scrapped the yuan’s 23-month-old peg to the dollar on June 19, 2010 and resumed a managed float. The yuan has since risen 0.8 percent against the dollar.
China continues to hold its $2.45 trillion of official reserves in a mix of currencies and assets, chiefly the dollar, euro and yen.
BEIJING