Shanghai: China powerhouse.

China reached another important milestone as its economy eclipsed Japan to become the world’s second largest economy during the second quarter of this year. The country became the world’s biggest exporter in 2009, producing 9.9% of global exports.

Japan dropped to third in the economic league table with a lacklustre second quarter, recording just 0.4% growth and a far cry from 4.4% in the first quarter, as its export-led resurgence faltered.

Maturing economy

In contrast, the Chinese economy has continued to rise through the period and is on course for 10% growth this year. This is partly the result of a maturing economy as domestic consumers shoulder the growth burden by maintaining demand. However, while Chinese potential buying power is formidable, it is hugely dependent on families transforming  their habits from being long-term savers to consumers in the country’s growing retail sector.

Historically, personal consumption has been little more than 35% of GDP (gross domestic product) but wages in China are now set to rise to re-balance the economy.

Export market

Research from investment bank Goldman Sachs indicates China will be the world’s largest economy by 2027, making the country a vital export market for knowledge and services-based economies like the UK.

UK inflation slows

Meanwhile, here in the UK inflation eased to 3.1% in July from 3.2% in June, the third consecutive month prices have risen more slowly.

Nevertheless, the Consumer Prices Index (CPI) is still well above the Bank of England's 2% target rate. The Retail Prices Index (RPI) slowed to 4.8% from 5% in June, the Office for National Statistics (ONS) said.

Bank of England governor Mervyn King attributed the recent strong inflation to a number of ‘temporary factors’ including the return of VAT this year to 17.5% following its temporary reduction to 15% during the recession, as well as past rises in oil prices and higher import costs resulting from sterling’s depreciation since the middle of 2007.

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