China closing on No. 3 trade spot

CNN) -- China is closing fast on Japan and is likely to overtake it this year as the world's No. 3 trading nation behind the United States and Germany, new figures show.
China already imports more goods than Japan and almost certainly will surpass it in merchandise exports in 2004.
World Trade Organization data for 2003 shows Japan had merchandise imports and exports of $854.7 billion, just ahead of China's combined total of $854 billion.
When services trade is added, Japan's total grew by $180.9 billion to $1035.6 billion.
China's much smaller services sector added $101.3 billion, for a final total of $955.3 billion.
The two Asian trading giants are still well behind front-runner the United States, with total trade in goods and services of $2529.1 billion, and second-placed Germany, with a total of $1636.4 billion.
France and the United Kingdom occupy the fifth and sixth spots in global trade flows.
Japan is the world's second-largest economy behind the United States, while China ranks No. 6 behind Germany, the UK and France.
But China's red-hot economic growth this year means it is gaining rapidly on the industrialized nations, both in consumption and gross domestic product.
Even with a government-induced cooling of investment in some sectors, China's economy grew at 9-percent plus in the year to the end of September.
China hikes rates
In a further attempt to cool its overheated economy, China raised interest rates last week for the first time in nine years, pushing the key rate to 5.81 percent.
According to Chinese government data, merchandise imports and exports in the first eight months of this year rose 38 percent from a year earlier to reach $722 billion.
In comparison, Japan's merchandise trade rose 20 percent to $658 billion.
If the trend continues through to the end of 2004, China's merchandise trade should comfortably top $1 trillion, while Japan will get to about $980 billion.
But inflation, high oil prices and last week's interest rate hike could all weigh on the final Chinese trade figure.
China's trade with key partners such as the United States, the European Union, Japan and East Asia has grown rapidly in recent years, particularly since China's entry into the WTO at the end of 2001.
But that growth has prompted protests from the U.S. and Europe, which claim that an artificially low value for the Chinese currency gives the country an unfair competitive advantage in its trade dealings.
Analysts such as Morgan Stanley's Hong Kong-based chief economist Andy Xie welcomed Beijing's interest rate increase last week, seeing it as the best chance for the Chinese economy to achieve a soft landing.
Xie believes the rate rise was the first of many to come.
"China will likely track the (U.S.) Fed rate hikes in the coming months," he noted in a commentary after the rate rise.