China World's Second-Largest Economy

It’s the end of an era for Japan: China has now surpassed it to become the second-largest economy in the world, with Japan dropping to the No. 3 spot. Japan’s economy contracted at a 1.1 percent annual rate in the final quarter of 2010, a period during which China’s GDP grew 9.8 percent from the previous year. Japan’s full year GDP fell just shy of China’s $5.88 trillion, underscoring the decline of the country’s long-stagnant economy. Both of the Asian nations’ economies are still considerably smaller than the U.S., which had a GDP of $14.66 trillion in 2010. Japan has been an economic rival but a strong political ally for the U.S., while China represents a potential challenge on several fronts.