China poised to become the world’s second economy in 2010

The WEO points out that China’s GDP in 2009 will reach 4.8 trillion US dollars behind the US and Japan, but since its recovery will be faster and stronger in 2010, GDP is forecasted to reach 5.3 trillion US dollars next year, ahead of Japan which will fall to third place.

China is forecasted to expand 6.5% in 2009, almost half its average of the last decade (13% in 2007) which in the context of global recession is still “strong growth”. China has implemented a robust domestic demand stimulus plan, relying less on its export drive, which has been praised by the IMF.

Beijing officials have acted “vigorously” with fiscal re-activation and monetary flexibility helping to boost domestic consumption and infrastructure investments says the WEO report which forecasts China’s GDP will expand 7.5% in 2010, returning to double digit growth in 2011.

At the same time recession will punish Japan severely with an estimated GDP contraction of 6.2% in 2009. Japan as well as other Asian exporters has been hit extremely hard by the collapse in exports particularly cars and electronics.

Therefore the 2010 scenario will have a double input: relative Chinese growth and the negative performance of the Japanese economy, helping China to become undisputed second behind the US.

But analysts also point to the fact that China will have to get accustomed to a weaker demand for its exports from United States, “of which it is highly dependent” and must also manage efficiently the growing expectations of its population.

China is forced to grow at a rate above 8%, which is the floor to ensure the economy absorbs the millions that annually migrate from farms to cities hopeful of better living conditions and work and education opportunities for their families in the sprawling urban giant. This represents a major challenge particularly for a country with a political straight jacket.