China is now the world's second largest economy, having overtaken Japan in terms of the size of its GDP. It is true that this is partly due to Japan's poor performance. The change in rankings coincided with news that Japan's GDP grew at just 0.4 per cent in the three months to the end of June, well below an expected 2 per cent plus. It is also true that in per capita terms China's GDP is less than a tenth of that in Japan. Yet the fact that the change in China's ranking is the result of a scorching pace of growth sustained over a period of three decades, which shows no signs of relenting, suggests that this is by no means the end of a journey. Hence, despite the many statistical issues relating to estimation procedures used in different countries and the exchange rates at which local currency figures are converted to a common currency, the new GDP numbers are seen as signalling a transition to a new era in terms of the global balance of power.
China has responded with much maturity and not displayed any triumphalism after the release of these numbers. This is partly because, measured in purchasing power parity exchange rates, its GDP has been ahead of Japan's for quite some time now. It has also had a more important role and greater influence in the global system. But Chinese caution may also be because of concern regarding the quality of its growth process. For example, there is a call within China for measures to dampen growth and redress the problem of “overheating,” the most important sign of which is a speculative boom in the property market. But of greater concern for the country is the dependence of its growth on global markets in general and that of the United States in particular. This makes growth vulnerable, as governments respond either with protectionist measures or with demands for adjustments on China's part that could be expensive. It also increases international hostility towards the rapidly rising power. An influential view outside China is that its growth contributes to global imbalance and economic fragility. That argument is buttressed with data on the size of its trade surplus. Often these arguments are a cover for the ideological and political hostility generated by fear of a country which till recently was substantially centrally planned and even now has an economic and political system with unique characteristics. China must respond well; and it has clearly done so in recent times. It is making an effort at reorienting growth to the domestic market. It is making careful and calibrated adjustments of the value of the renminbi. It is seeking to rebalance growth in ways that make it more equitable and more environmentally friendly. It must now also take on a global role indicative of its status that favours justice and equality and helps make the current period of transition orderly and peaceful.