How China's New Status Affects You
The International Date Line saved Japan from what could have been a disappointing Valentine's Day. On February 14, China's ascendancy over Japan as the world's second-largest economy was made official. Although the event was widely reported as news, it actually occurred in 2010 - and it was hardly a surprise. By many economic measures, China has been outrunning Japan for a long time. To be fair, by other measures China still has a long way to go to catch up to Japan. We'll look at what this shift in global ranking actually means to the general public and investors. (For more, see The Top 6 Factors That Drive Investment In China.)

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Least Surprising News Since Ricky Martin
China's growth rate has been above and beyond Japan's for some time, so this was a mathematical inevitability as long as the growth rate held up. For that matter, China is growing faster than the U.S., causing much speculation as to when China will take the top slot.

Ancient Chinese Secrets
The secret to China's success is simple: China has a cheap workforce and is able to produce products for export that are cheaper than anywhere else. And China's workforce isn't just cheap - it is huge. Having a large workforce willing to work for cheap (compared to developed nations) means that manufacturing a product in China is economically attractive.

The influx of production has made China into what Britain, the U.S. and Japan have all been at one time: "The factory of the world." This simply means that a large amount of worldwide manufacturing is being done in China. The chances are good that, unless you are naked in a bare room, something on or about your person is made in China. In fact it is almost a certainty that several components in whatever device you are using to view this article are either made or assembled in China. The economic clout that comes with being an overpowering engine of production is significant, especially when it is further primed by investment capital from abroad looking to help increase that edge.

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Already Looking For The Next China
However, another news item in recent weeks - although equally expected - has put a bit of a damper on the story of China's breakneck development. As early as 2008, many companies started moving production to Indonesia, Cambodia and Vietnam because the cost of labor in China has been rising. In recent weeks, this exodus has extended to clothing, an area where Chinese production was once thought unassailable.

This news is both good and bad for China. As the Chinese workforce sees rising wages - no matter how small compared to other countries in the tops for GDP - they are buying more domestically. This domestic market will become more important as China's labor costs climb and the economy subtly shifts from developing to developed. The gradual loss of the "factory of the world" status means that, someday, China will have to move on to the next phase.

China's Next Step
A big part of moving from an emerging to emergent economy is seeing those massive GDP gains spread around more. One metric by which China still notably lags Japan is individual wealth and standards of living. China can clearly not count on always being the cheapest producer for everything. Like the U.S. and Japan, China needs to develop the technical skills to get beyond the "make it quick, make it cheap" production method. Although that method has earned them the second slot, it is higher-level production that will truly make the Chinese economy a rival for the United States. (For more, see China Vs. The U.S. - A Race To The Top.)

Following The Rising Sun
China is well aware of this challenge and is, of course, taking a page out of Japan's playbook. Older folks probably remember a plethora of terms used to describe Japanese made products that would surprise younger people today who have become used to Toshiba, Canon, Sony (NYSE:SNE), Toyota (NYSE:TM) and other Japanese brands as denoting the highest in quality and performance. Right now "Made in China" is often associated with cheap and often unreliable goods, but this is going to change.

Chinese businesses have been taking gains made from the cutthroat business of basic manufacturing and using them to move higher up the chain to more profitable areas. Massive investments are also being made into research and development by Chinese firms, and infrastructure development has become a priority for the government. True, much of the growth story may already have been told, but that doesn't mean China's story is over.

Bottom Line
Ironically, the ascension of China to the number two spot more or less signals the end of the countries rapid growth as the factory of the world. The good news, however, is that the Chinese economy is now in a prime position to transition to higher levels of production by introducing new products and services, while also enriching more Chinese and raising the standard of living in the process. For investors, there are still many opportunities in China, but the selection of companies will become more important compared to the blind investment in the country as a whole that has served in the past. (For more, check out The 6 Fastest-Growing Economies.)

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