CHINA has almost certainly overtaken Japan to become the world's second-biggest economy after state officials dramatically upgraded their estimates for the country's growth last year.

The fast-growing emerging economy had been expected to surpass Japan next year, but the transition looks to have happened already this year, based on China's new growth estimates. Its statistics bureau said that China grew by 9.6 per cent - rather than 9 per cent - last year, meaning its economic output was 31.405 trillion yuan ($5.21 trillion) last year.

According to the World Bank, Japan's annual output was the equivalent of $5.53 trillion last year, but it is expected to have shrunk by 6.6 per cent this year. Chinese officials project that its economy will grow by more than 8 per cent this year.

Statisticians said the bigger-than-expected expansion last year was fuelled largely by strong growth from the services sector, something which was only uncovered after a detailed census into economic activity during the year.

In 2005 China's statisticians dramatically upgraded their estimates of the size of the economy, catapulting over Britain to become, at the time, the world's fifth-biggest economy.

Peng Zhilong, head of the national economy calculation department, said that the main difference was in the overall size of the economy, rather than its growth rate.

David Cohen, of Action Economics in Singapore, said: ''The big underlying factor propelling China's growth is the migration of people from the agricultural sector to the more modern economy - industry and services. There's no stopping China.''

But although China's breakneck expansion looks likely to continue for some time yet, there are concerns over the country's path.

Some economists compare China's position - with the authorities combining low interest rates with high government investment and rising asset prices - to Japan in the late 1980s, warning that it, too, could fall victim to a crash.

Nevertheless, the news about the country's strong growth will add to hopes that it will help support the wider world economy out of recession next year.

However, economists said the first quarter of the new year would be marked by increasing tension over the fiscal position of various countries. Having had to borrow unprecedented amounts in order to prevent a deeper recession, a number of countries have generated large deficits, which may scare off international investors.

Telegraph, London