I think, like G Sheridan, it’s a muddle of rival views not really sorted out. But, he likes the main ideas. I’m not so keen.
A twitter test reveals my biggest doubt about it’s main proposition.
First the proposition:
“China will also be the strongest Asian military power, by a considerable margin. Its military modernisation will be increasingly characterised by the development of power projection capabilities. A major power of China’s stature can be expected to develop a globally significant military capability befitting its size. But the pace, scope and structure of China’s military modernisation have the potential to give its neighbours cause for concern if not carefully explained, and if China does not reach out to others to build confidence regarding its military plans.
China has begun to do this in recent years, but needs to do more. If it does not, there is likely to be a question in the minds of regional states about the long-term strategic purpose of its force development plans, particularly as the modernisation appears potentially to be beyond the scope of what would be required for a conflict over Taiwan.” Paragraphs 4.26 & 4.27 of the White Paper
Here’s the twitter-translation; the main point of a 1.8 megabyte paper in about 140 bytes.
We should spend 60 billion dollars we don’t yet have on short-lived weapons because we’re worried China has not explained itself that well.
Nah! I don’t get it.
Greg Sheridan says, “just for the record”, that the US economy is six times as big as China’s — and claims that the white paper understands that its assertion that “By some measures, China has the potential to overtake the US as the world’s largest economy around 2020” is “silly”. He also claims that the use of the purchasing power parity (PPP) method to compare the relative size of economies is “sleight of hand” and gives rise to a “statistical illusion” and “a meaningless measure”.
Sheridan is wrong on all counts. Even on the discredited “market” exchange rate method that he persistently champions against the unanimous advice of economic statisticians and index number theorists, the GDP of the US economy is now only three times as big as China’s, not six times as big (IMF, World Economic Outlook Database, April 2009).
Curiously, Sheridan describes the exchange rate-converted GDP number for China as being in “real dollars” — in fact, the result of dividing China’s GDP in local currency units into $US using the exchange rate yields nominal dollars. In order to obtain a valid comparison in “real” dollars, it is necessary to allow for the obvious fact that, on average, the Chinese currency equivalent of the $US will buy more in China than in the US (This is NOT necessarily true of all components of expenditure or of all regions and cities).
Greg Sheridan accepts uncritically the white paper projection of REAL increases in Australian defence spending of 3 per cent annually up to 2018, thereby recognising the principle that comparisons of spending in one country over time must be corrected for differences in price levels. For the same reason, comparisons between countries at the same point in time must also be corrected for price differences — I don’t understand why Sheridan (and many others) cannot see the inconsistency in their position.
GDP is a measure of OUTPUT, and cross-country comparisons of GDP must be informed by an understanding of what the statisticians’ concept of GDP measures. The white paper refers to an undefined concept of “economic strength”, which it says “is also a function of trade, aid and financial flows.” According to these “market-exchange measures” the white paper asserts that “the US economy is likely to remain paramount.”
This is certainly not obvious. So far as the value of exports in $US is concerned, the US economy dropped from first place in the world in 2000 to third place in 2007, after Germany and China. In contrast, China’s place on the exports league table rose from sixth in 2000 (after the US, Germany, Japan, France and Canada) to second in 2007.
China led the world in ‘high-tech exports’ in 2006 ($US 271 billion), with the US running second ($US 219 billion) and Germany third ($US 155 billion). (IMD World Competitiveness Yearbook 2008, p. 438).
So far as investment flows are concerned, it may be questioned whether the US’ huge and continuing deficit on current account is a measure of “economic strength”. According to the latest IMF estimates. the US will run a cumulative current account deficit of $2.8 trillion over 2009 and the next five years, while China will have a cumulative current account surplus of $3.8 trillion over the same period. These numbers imply a massive increase in the international indebtedness of the US, and a correspondingly large increase in China’s international investment position.
I do not suggest, as Greg Sheridan has, that the argument about relative economic strength in the white paper is “incoherent” and “silly” — but I do believe that the authors should have paid closer attention to the meaning of the economic measures upon which they relied, and offered a more detailed analysis to underpin their conclusion that the US “is likely to remain dominant.”
Of course I meant to say that the Chinese currency equivalent of the $US will buy more in China than the $US will buy in the US.
Ian,
Thank you for adding a more serious dimension to this story. You are right to offer some caution about what really measures ‘growth’ or economic might.
I think this is a muddled White Paper that does not say what it means (and possibly means less than the authors think). The defense outlook is benign. Their determination to recommend a huge re-investment in equipment may be justified (partly) on grounds of the long lead-times and lumpiness of defense purchases. But I do not think they have made good sense of their present recommendations.
On the matter of China; I think Australians have many reasons—not just economic reasons—to celebrate China’s growth.
But it is also true (always, forever) that great powers—among whose ranks China is or will be—treat deference as their due. We can hardly spend enough to evade that fact. But some deference is economical at this distance, especially if we spend just enough to be marginally defiant.
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