Twitter test of defense policy

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.


  1. 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.”

  2. 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.

  3. 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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