China has surpassed Japan to become the world's second largest economy, lagging only behind the United States, a Chinese government official said in remarks published on Friday.

China said Friday it opposed tough new sanctions imposed by the European Union on Iran over its contested nuclear programme, again calling for more talks to resolve the standoff.

China wants the yuan to be fully convertible and such currencies are generally free-floating, a top central bank official said Friday, six weeks after Beijing pledged to loosen its grip on the yuan.

China's military on Friday criticized remarks by U.S. Secretary of State Hillary Clinton that Washington had a strong interest in seeing territorial disputes in the South China Sea resolved peacefully.

China has overtaken Japan to become the world's second-largest economy, the fruit of three decades of rapid growth that has lifted hundreds of millions of people out of poverty.

China this week staged a large naval and air exercise on its southeast coast, as South Korea and the United States conducted their own naval drill opposed by Beijing, state media said Friday.

China said on Friday that it did not approve of tougher new sanctions imposed by the European Union on Iran, and welcomed Tehran's offer to return to negotiations on a nuclear fuel swap without conditions.