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, reported CNN on Wednesday.

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 US$854.7 billion, just ahead of China's combined total of US$854 billion.

When services trade is added, Japan's total grew by US$180.9 billion to US$1035.6 billion.

China's much smaller services sector added US$101.3 billion, for a final total of US$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 US$2529.1 billion, and second-placed Germany, with a total of US$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

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 US$722 billion.

In comparison, Japan's merchandise trade rose 20 percent to US$658 billion.

If the trend continues through to the end of 2004, China's merchandise trade should comfortably top US$1 trillion, while Japan will get to about US$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.