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Tokyo on Monday welcomed China’s advance to the world’s second-biggest economy in 2010, with Cabinet members expressing hope that Japan, relegated to third place, and Asia as a whole will benefit from the emerging economy’s development.

Chief Cabinet Secretary Yukio Edano said “the important thing is to incorporate such vitality” to seek growth in the Japanese economy, while economic and fiscal policy minister Kaoru Yosano separately said Japan wants to deepen its “friendly and favorable” economic ties with China.

“We are not engaging in economic activities to vie for ranking but to enhance people’s lives. From that point of view, we welcome China’s economic advancement as a neighboring country,” Yosano said, giving an upbeat view on Japan’s prospects despite the pause in its economic recovery.

According to preliminary gross domestic product data released by the Cabinet Office earlier in the day, the Japan’s economy contracted in the three months through December on weak consumption, logging the first decline in five quarters.

“The data for the October-December quarter underscored that the economic condition is at a standstill,” Yosano said, adding that “the situation surrounding Japan’s economy is not necessarily bad” given the bright signs in the U.S. economy.

But Yosano warned that the domestic political situation could serve as “a risk” to the economy, given concerns about the government’s ability to ensure passage of the fiscal 2011 budget and related bills by the March 31 end of the current fiscal year in a divided Diet.

Japan had maintained its position as the world’s second-largest economy since 1968. But the latest data showed that Japan dropped to third place, behind the United States and China.

Yosano said he expects China’s advance to serve as “a cornerstone for the regional economy, including the East Asian and Southeast Asian regions, to develop in an integrated manner.”

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