Based on figures for the second quarter of 2010, China's fast-growing economy leapfrogged Japan, something analysts had forecast even before the global economic downturn.
In recent years China has overtaken Germany, France and the UK and could surpass the US by 2030.
The news cements China's position as a global economic powerhouse, and while the noises coming from Beijing are modest, getting one over on Japan – an historic local rival – will be a source of great pride for ordinary Chinese citizens.
Japanese officials say it would be fairer to compare the figures at the end of the year rather than relying on the results of a single quarter, but with China's economy growing quickly and Japan in the economic doldrums, it is almost certain that Japan will find itself in third place at the end of the year.
Meanwhile, the EU economy grew at its fastest pace in three years in the second quarter of the year, thanks in no small part to Germany's 2.2% growth.
Challenges remain in China
Per capita income in China is still a fraction what Europeans, Americans or Japanese workers earn and quality of life issues – notably environmental challenges and social inequality – remain major headaches for Beijing.
The EU and US have been heaping pressure on China to allow its currency to appreciate, with Western leaders arguing that Beijing has kept the renminbi artificially low in order to boost exports.
There has also been criticism of China's intellectual property regime and allegedly protectionist policies designed to favour domestic firms.
Nonetheless, the economic crisis has hit Western capitals harder than Beijing, which has been a major source of credit, particularly for the US. Despite holding billions of dollars in its foreign currency fund, China has argued that the world should abandon the greenback as a global reserve currency.
The news that China is now the world's second-largest economy merely confirms its status as a major geopolitical player.
