SHANGHAI?After three decades of spectacular growth, China passed Japan in the second quarter to become the world?s second-largest economy behind the United States, according to government figures released early Monday.

The milestone is the most striking evidence yet that China?s ascendance is for real and that the rest of the world will have to reckon with a new economic superpower that is changing everything from the global balance of military and financial power to how cars are designed.

China is already the world?s biggest exporter, auto buyer and steel producer. Its global influence is rapidly expanding, its economy having passed those of Great Britain, France and Germany earlier this decade.

Tokyo announced Monday morning that Japan?s economy was valued at about $1.28 trillion in the second quarter, slightly below China?s $1.33 trillion.

Japan?s economy grew only 0.4 percent in the quarter, substantially less than forecast. The weak growth indicates that China?s more robust economy will race past Japan?s for the full year because of the huge difference in each country?s growth rates.

For the full year, China is expected to grow at about 10 percent while Japan is forecast to expand only between 2 to 3 percent. The gap between the size of the two economies at the end of last year was already narrow.

No. 1 in 20 years

China?s growing clout bolsters forecasts that it will pass the United States as the world?s biggest economy as early as 2030. America?s gross domestic product was about $14 trillion in 2009.

?This has enormous significance,? said Nicholas R. Lardy, an economist at the Peterson Institute for International Economics. ?It reconfirms what?s been happening for the better part of a decade: China has been eclipsing Japan economically. For everyone in China?s region, they?re now the biggest trading partner rather than the United States or Japan.?

Japan had been the second-largest economy since 1968 when it overtook West Germany. From the ashes of World War II, Japan rose to become a global manufacturing and financial powerhouse. During the 1980s, there was even talk about Japan?s economy some day overtaking that of the United States.

But Japan?s so-called ?economic miracle? turned into a massive real estate bubble in the 1980s before imploding in 1991. What followed was a decade of stagnant growth and economic malaise from which the country has not fully recovered.

More room to grow

While Japan?s economy is mature and its population quickly aging, China is in the throes of urbanization and is far from developed, meaning it has a much lower standard of living, as well as a lot more room to grow. Just five years ago, China?s gross domestic product was about $2.3 trillion, about half of Japan?s.

China has roughly the same land mass as the United States, but it is burdened with a fifth of the world?s population and insufficient resources.

China?s per capita income of about $3,600 is also more at par with those of poor nations like Algeria, El Salvador and Albania. The Americans and the Japanese, though, are still the world?s richest peoples, with per capita incomes of $42,240 and $37,800.

Yet there is little disputing that under the direction of the Communist Party, China has begun to reshape the way the global economy functions by virtue of its growing dominance of trade, its huge hoard of foreign exchange reserves and US government debt, and its voracious appetite for oil, coal, iron ore and other natural resources.

Major driver of growth

China has become not only a major driver of global growth but also a leading force behind the world?s emergence from deep recession, delivering much-needed juice to the United States, Japan and Europe.

While the United States and European Union are struggling to grow in the wake of the worst economic crisis in decades, China has continued to climb up the economic league tables by investing heavily in infrastructure and backing a $586-billion stimulus plan.

This year, China?s economy is expected to continue its remarkable three-decade streak of double-digit growth.

China?s leaders also have grown more confident on the international stage and have begun to assert greater influence in Asia, Africa and Latin America, with things like special trade agreements and multibillion-dollar resource deals.

?China is still a developing country ? (but) it has the biggest impact on commodity prices?in Russia, India, Australia and Latin America,? said Wang Tao, an economist at UBS in Beijing.

?They?re exerting a lot of influence on the global economy and becoming dominant in Asia,? said Eswar S. Prasad, a professor of trade policy at Cornell and former head of the International Monetary Fund?s China division. ?A lot of other economies in the region are essentially riding on China?s coat tails, and this is remarkable for an economy with a low per capita income.?

Beijing is also beginning to shape global dialogues on a range of issues. Last year, for instance, it asserted that the dollar must be phased out as the world?s primary reserve currency.

Challenges

There are huge challenges ahead, though. Economists say that China?s economy is too heavily dependent on exports and investment and that it needs to encourage greater domestic consumption?something China has struggled to do.

The country?s state-run banks have recently been criticized for lending far too aggressively while shifting some loans off their balance sheet to disguise lending and evade rules meant to curtail lending growth.

China is also locked in a fierce debate over its currency policy, with the United States, European Union and others accusing Beijing of keeping the Chinese currency, the renminbi, artificially low to bolster exports?leading to huge trade surpluses for China but major bilateral trade deficits for the United States and the European Union.

Fierce competition

China insists that its currency is not substantially undervalued and that it is moving ahead with currency reform.

Regardless, China?s rapid growth suggests that it will continue to compete fiercely with the United States and Europe for natural resources but also offer big opportunities for companies eager to tap its market.

Although its economy is still only one-third the size of the American economy, China passed the United States last year to become the world?s largest market for passenger vehicles. China also passed Germany last year to become the world?s biggest exporter.

Global companies like Caterpillar, General Electric, General Motors and Siemens?as well as scores of others?are making a more aggressive push into China, in some cases moving research and development centers here.

Assessing what China?s newfound clout means, though, is complicated. While the country is still relatively poor per capita, it has an authoritarian government that is capable of taking decisive action?to stimulate the economy, build new projects and invest in specific industries.

That, according to the Peterson Institute?s Lardy, gives the country unusual power. ?China is already the primary determiner of the price of virtually every major commodity,? he said.

?And the Chinese government can be much more decisive in allocating resources in a way that other governments of this level of per capita income cannot.? Reports from New York Times News Service and Associated Press