China’s Economy Overtakes Germany, Revised Data Shows

By Nipa Piboontanasawat and Kevin Hamlin

Jan. 14 (Bloomberg) -- China’s economy overtook Germany’s in 2007 to become the world’s third largest, underscoring the nation’s increasing economic and political clout.

Gross domestic product expanded 13 percent from a year earlier, more than a previous estimate of 11.9 percent, to 25.731 trillion yuan ($3.38 trillion), the statistics bureau said on its Web site today. That topped Germany’s 2.424 trillion euros ($3.32 trillion), using average exchange rates for 2007.

China’s economy is 70 times bigger than when leader Deng Xiaoping ditched hard-line Communist policies in favor of free- market reforms in 1978. After overtaking the U.K. and France in 2005, China became the third nation to complete a spacewalk, hosted the Olympic Games and surpassed Japan as the biggest buyer of U.S. Treasuries.

“This number is just one more piece of evidence that China is one of the most important players on the global stage,” said Huang Yiping, chief Asia economist at Citigroup Inc. in Hong Kong.

The figure was released as China faces the weakest economic expansion since 1990 after trade growth collapsed because of the global recession.

China’s economy may now be as much as 15 percent larger than Germany’s, Louis Kuijs, a senior economist at the World Bank in Beijing, estimated today. He confirmed the calculation that it overtook Germany in 2007.

Overtaking U.S.

The U.S. economy is the world’s biggest, followed by Japan’s.

“If China continues to grow at its average rate in the past 20 years and if the U.S. does the same, it will overtake the U.S. in 20 years,” said Tim Condon, head of Asia research at ING Groep NV in Singapore. “There’s no doubt that that will happen -- it’s just a matter of time.”

The nation’s enlarged role in the global financial system was highlighted when it cut rates at the same time as the U.S. Federal Reserve and five other central banks in October to counter the deepening credit crisis. In contrast, Japan stood on the sidelines.

China is the biggest contributor to global growth and underpins demand for metals, grains and the exports of its Asian neighbors. It also has a big stake in the U.S. economy, holding $652.9 billion of U.S. Treasuries, according to Treasury Department data.

Reducing Poverty

Since introducing free-market policies, China has lifted 300 million citizens out of poverty, according to the United Nations.

“We have overcome challenges in the past 30 years, from the breakup of the Soviet Union to facing down global sanctions, from the Asian financial crisis to the current global crisis,” President Hu Jintao said last month in a speech marking the introduction of free-market policies. “Our international profile is rising and we will play an increasingly constructive role.”

The nation hosted the Olympic Games in August last year, did a spacewalk in September and is aiming to land a man on the moon by 2020.

“China’s importance goes beyond even the ranking as number three because it’s one of the only resilient economies in the world today,” said Citigroup’s Huang.

Still, growth is sagging.

The economy grew 9 percent in the third quarter of 2008, the least in five years. The fourth-quarter expansion, due to be announced next week, was 6.8 percent, the weakest since 2001, according to the median estimate of 12 economists surveyed by Bloomberg News.

The nation’s 4 trillion yuan stimulus package, announced in November, may help to limit the severity of the slowdown.

To contact the reporter on this story: Nipa Piboontanasawat in Hong Kong at npiboontanas@bloomberg.net