FIGURES published earlier this week showed China has overtaken Japan to become the world’s second-largest economy.

While the immediate cause was worse than expected growth in Japan, it was only ever a matter of time before China claimed second place.

China’s ascendancy to second place has got economists talking about the likelihood of the country superseding the US as the world’s largest economy, though whether that will happen soon is doubtful.

The world is gradually becoming more equal. Economic, political and military power has for many decades, even centuries, been the preserve of western nations. But nowadays China and Japan combine to form a multi-trillion dollar economic zone that will create huge complementary trading advantages for both countries.

To its credit, Liverpool City Council has been quick to spot the opportunities in China, as its presence at Shanghai’s World Expo demonstrates. But the fact is that, as wealth begins to spread to other emerging economies such as Brazil and India, we will need to forge links elsewhere, too.

But the world needs the emerging nations, and China, in particular, to change their behaviour, which is currently causing big international trade and capital imbalances. Indeed, such imbalances contributed directly to the credit crunch. Now, China’s big foreign exchange stockpile will give the country a huge influence over future investment.

It should not be forgotten that the Chinese are still poor people with an average GDP per capita of $3,600, a small fraction of developed countries and lower than Albania, Gabon, Peru and Tonga. While coastal regions of China have enjoyed huge growth, most of the country can still be characterised as remote and agrarian. We are undoubtedly many decades, even a century or two, from the day when China’s GDP per capita exceeds that of Japan, America, Britain and other developed nations.

Indeed, China’s breakneck pace of growth could yet backfire on it. A huge property bubble might burst in a fashion that makes the credit crunch in the US look like a Sunday afternoon walk in the park.

Another hindrance to China’s continued growth could be its lack of political freedoms and human rights weaknesses. Yet, at the personal level, China has a strong enterprise culture. University graduates there aspire to be self-employed business owners, not M&S management trainees.

YOU would expect inflation to be weak in a period of slow economic growth. Yet that has not happened.

Yesterday, the Governor of the Bank of England had to write a letter to the Chancellor of the Exchequer explaining why inflation was more than 1% above target. He attributed our 3.1% rate to higher oil prices, weak sterling causing import prices to rise and the restoration of the 17.5% VAT rate at the start of the year. All of these factors, says the Governor, will work their way out of the system over the next few months, at which point the nation’s inflation rate will reflect weak economic demand.

How quickly that happens is another matter. As well as the inflationary pressures mentioned above, food prices can be expected to continue to rise as Russia’s grain harvest suffers as a result of the drought there.

But the Governor clearly thinks there is nothing to worry about, despite the surprising strength of inflation. In his letter to George Osborne, Mervyn King says there is no danger of Britain’s inflation rate remaining high for much longer. Let’s hope he is right.