The status is symbolic - China's 1.3 billion people are, on average, among the world's poorest - but reflects the country's explosive growth as it became the world's factory and a trading power over 30 years of economic reform.
The government revised its estimate of 2007 economic growth from an already high 11.9 percent to an eye-popping 13 percent, the fastest rate since 1994.
That raised China's gross domestic product to 25.7 trillion yuan, or $3.5 trillion at 2007 exchange rates, the national statistics agency said. That would be ahead of Germany's 2007 GDP of 2.4 trillion euros, or $3.3 trillion at an exchange rate produced by averaging rates on the 15th of each month during that year. Based on only Dec. 31, 2007, exchange rates, China was slightly behind Germany but would have passed it early last year.
"I think it will take only three to four years for China to overtake Japan as the second-largest economy in the world," he said.
The revision comes at a time when Beijing is struggling to reverse a sharp slowdown in growth caused by global economic turmoil. The government is launching a 4 trillion yuan ($586 billion) stimulus package and has promised measures to help struggling exporters and producers of autos and steel.
"The change in GDP estimates for two years ago will not alter the economy's near-term outlook. The only effect is perhaps negative, as a stronger 2007 would make the 2008 slowdown more upsetting," said Sherman Chan, a Moody's Economy.com analyst.
The United States is the world's biggest economy at $13.8 trillion in 2007, followed by Japan at $4.4 trillion.
Germany's 85 million people also were still far ahead of China in GDP per person in 2007 at 28,200 euros ($38,800).
China's GDP per person was 19,800 yuan ($2,800) in 2007, but the country has wide disparities of wealth and poverty, and many live on far less than that. Chinese officials say more than 100 other countries have a higher income per person.
China began shifting from communist central planning to a market-style economy in 1979 under then-supreme leader Deng Xiaoping. GDP that year was the equivalent of just $300 billion - one-tenth of the 2007 level - according to the International Monetary Fund.
Deng's reforms would allow hundreds of millions of people to lift themselves out of poverty over the next three decades and transform major cities into forests of skyscrapers and modern apartment blocks, their streets jammed with private cars.
China routinely revises past economic data as it gathers new information on the fast-changing economy, and already had raised 2007 growth once last spring, from 11.3 percent to 11.9 percent. The statistics bureau's two-sentence statement Wednesday did not explain the factors behind the latest change.
Independent economists say China's economy is believed to have grown by another 9 percent in 2008 despite the global downturn.
But they have slashed 2009 forecasts to as low as 6 percent. That would be the highest for any major economy but is worrisome for communist leaders who need to satisfy a public that expects steadily rising incomes.
Lu said it will be decades before China can match U.S. output, if it ever can.
"Even if growth in the U.S. is zero, China still would have to double and double again to overtake the U.S.," he said. "It would be more than 20 years, and that is so far out it is very hard to forecast what will happen."
On the Net:
National Bureau of Statistics (in Chinese): http://www.stats.gov.cn