Greg Sheridan destroys the China inevitability myth

Bravo Geg Sheridan who deconstructs ScoMo’s official view of China:

Mistake No 1: The PM says China has the “biggest economy in the world in terms of parity purchasing power”. This nonsense statement reflects the weird attachment the bureaucracy has to making these absurd claims about the Chinese economy. Let’s be clear: the US economy is substantially bigger than $US20 trillion ($28.7 trillion) — China’s is about $US13 trillion. That means the Chinese economy is about 65 per cent the size of the US economy. If China is growing about 6 per cent and the US about 3 per cent, the size of the gap between them is not changing much.

…Which leads us to mistake No 2: Everything the PM said about the US in what was a generally good speech is true. However, in an overwhelmingly economic speech he spoke of the US’s strategic importance to Australia…But the PM rightly wants to avoid a binary view of the region that sees everything as a tug of war between the US and China. He should also avoid the other silly binary that sees Australia trapped between its biggest trade partner and its security partner. China is indeed, and by some distance, our biggest trade partner. But the US is by a vast distance our biggest source of foreign investment. We are also a huge investor in the US.

Mistake No 3 is to cite the 1.2 million ethnic Chinese Australians as part of our relationship with the People’s Republic of China. Beijing wants to conflate all ethnic Chinese around the world with the government in China. We should not assist this process. Many of the ethnic Chinese in Australia did not come from China. They or their parents or grandparents came from Sin­gapore, Malaysia, Hong Kong, Taiwan, Indonesia, the Philippines, Thailand or other parts of the world. If our leaders must quote a figure like this — and why they do I have no idea — it should at least be accurate, something like 500,000 (or whatever the number is) of our citizens came from the PRC. But conflating Australian citizens of ethnic Chinese background with the PRC in any way is against our interests, is inaccurate on its face and will tend to divide rather than unite Australians.e, despite those three mistakes, is a very good beginning.

Fantastic stuff. On point one, China is actually much further behind the US than even this. In its GDP accounting, China does not write down dodgy assets in the way Western economies do. If it builds useless stuff, that isn’t worth the cost, then that is never recongised in GDP, whereas it is the US via write-downs.

Obviously, China builds a lot of said useless crap. Staggering amounts.  60 million empty apartments, roads and airports to nowhere. And on it goes. So if it were to adopt the proper accounting standards then its GDP measure would shrink, perhaps by as much as 20%.

In other words, in reality, the Chinese economy is only half as powerful as that of the US and it is choking on bogus GDP accounting and capital misallocation from the desperate need to keep idle hands busy so that they don’t turn hostile to a repressive regime.

Sure, it has caught up over the past two decades but it has done so via super-charged useless growth using debt. Future Chinese development is a giant bluff and the only thing inevitable about it is either financial crisis, extend and pretend stagnation or both. Once China goes ex-growth at 3-4% GDP, owing to its fallacious GDP accounting, it will barely be growing at all.

In raw power terms, this is why China has one aircraft carrier and the US has 21. Bizarrely, this is the basis upon which some in Canberra want to give away your democracy.

More Mr Sheridan!

David Llewellyn-Smith
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  1. My goodness, what a load of coduswallop.
    In my way of thinking neither Birth nor Death are events but rather both are processes.
    We’re all born incapable infants completely reliant on our Mothers to nurture us and than reliant on our society to educate us, at some point we become productive and capable of contributing some net value that ideally exceeds our own consumption.
    Similarly Death isn’t typically an event as much as a process, we get old and frail and incapable of hard labour or detailed thinking our net productivity drops into the negative range and eventually we expire but not without consuming a lot of resources pursuing death’s process.
    All that any society can hope is that this middle portions of life is productive. But what does that really mean? Productive is probably a bad word, a much better word is Adaptive, the middle aged worker is able to see opportunities and has the skills to direct their education, experience and capital towards solving the problem. In this sense (especially in a technologically changing world) the ideal workforce is Adaptive, they’re not scared of change but rather they embrace change because change creates value.
    Ok so what has this all got to do with the US vs China debate…nothing really except to say that metrics like GDP or it’s close relative Productivity tell us absolutely nothing about the Adapativity of either group. Seriously wtf is GDP a measure of and by extension what is Productivity if there is not tradeable output it’s all a meaningless bogus numberwang.
    In the end I suspect the country that succeeds is the one that can adapt quickest and seize the advantages that change creates, if we’re trying to predict long term winners/losers than I believe we need to be focused on this metric and forget all the other nonsense that economists would waste time measuring. Now if you really want to complicate the matter you also need to measure where each country is at on the Birth-Life-Death timeline but hey why bother with all this complexity when we have such excellent single point measures like GDP to fall back on …as they say GIGO.

    • Jumping jack flash

      Agree completely.

      The numbers are meaningless. They will only show what they want them to show.
      Like that joke they call CPI. The whole place would need to be in hyperinflation and/or burning down, food riots in the streets before it’d move out of the target band. Can you imagine 5% CPI? Can you imagine 1% CPI? No. It’d be chaos. That’s why we will never get that result. Ever.

      Can you imagine if a country in this day and age printed a “bad” GDP figure? It’d also be chaos. The vultures would attack. They would be made an example of. The price of their debt would rise, destroying everything.
      That’s why the numbers are carefully crafted to only show good news.

      We joke about China fudging their numbers, but the truth is that everyone fudges their numbers, and then we point at China and say “bad, bad!” because they dare to do it a different way.

      • Yea it’s a bit like d1ck pics: the purpose is to prove that mine is bigger, or at least still functional, so naturally we’re all more interested in sending than receiving said pics. If the pic actually showed correctly what you had in your hand than everyone would laugh themselves silly and wouldn’t ever defer to you on any issue aside from impotence. So as you’re saying this whole numberwang thingy does have a purpose

      • John Howards Bowling Coach

        I wonder if you guys sprouting opinions about China and the USA have been to either or both countries or done business with either or both countries. I suspect not. The reality is that China is largely a mirage, a lie told by them and a fake currency constantly being laundered through trade in cheap crap. I doubt the US$13 trillion figure for the economic size, I suspect it’s a lot smaller. What I can say for certain is that there are a LOT of people in China and the majority of them are dirt poor, they are not being lifted from poverty in a hurry. The middle class are dirt poor and those who can afford to buy anything from the rest of the world are few in number, probably around the size of the Australian population. Yes they have a lot of very rich people compared to a small nation like Australia, but in raw numbers not that much wealth and it is all trying to flee. As for the posts on here that China is not interested in invading or meddling in the affairs of foreign nations, unlike big bad USA, you are fooling yourself. China is currently invading a good portion of Africa, the Pacific, and much of Asia. In Addition select parts of Europe who are being encouraged to take on unserviceable debts for infrastructure they can’t afford. Have a look at Hungary. China is nobodies friend, don’t fool yourselves they are actively working on a takeover plan for global domination.

      • @JHBC
        Re: Have you guys ever been to China or the US?
        Maybe I lived for over a decade in each of these countries…or maybe not?
        How about yourself?
        Thing is I actually respected little John Howard …a lot more than I respect his bowling coach
        Thing is I met John Howard when his office was in Gladesville (where the old cinema used to be) he was not a bad bloke, I never thought he’d become PM….I also never thought he’d need a Bowling Coach …guess I was wrong on both counts.

  2. Sheridan says:
    “Let’s be clear: the US economy is substantially bigger than $US20 trillion ($28.7 trillion) — China’s is about $US13 trillion. That means the Chinese economy is about 65 per cent the size of the US economy. If China is growing about 6 per cent and the US about 3 per cent, the size of the gap between them is not changing much.”

    Clearly maths isn’t his strong suit.
    – is the US economy $28.7T? Or is that $28.7T in Oz $? If it is $28.7T then how is 65% of $28.7T equal to $13T? So it must be US$20T, except he says it’s much bigger.
    – 6% growth means China doubling in 12 years to $26T
    – 3% growth on $20T means doubling in 24 years.

    So, if those growth rates stay constant (they won’t) then in 24 years
    – China’s economy is $52T
    – US economy is $40T (or is that $57.4T?)

    So the size of the gap is changing a lot!

    • Yes, don’t know where he got that higher US figure from. Aside from that there is the whole question of actual growth, most(?) people who have looked into it put China’s real growth at about half the claimed figure, so even allowing for the effects of compounding actual differences probably not so great in the coming decades. Then throw in the demographics & debt issues and things likely even less rosy for China, though they will still be a force to reckon with.

    • It’s clearly AUD.

      20 * 1.42 = 28.4
      Apparently he wrote it when the poo was bobbing lower than it is right now.

      According to my basic excel table they’re 15 years from parity at 3 & 6% growth.
      Year 15 31.15934833 31.15525651

      Demographics will probably change the rates of both though.

    • John Howards Bowling Coach

      It’s Bullsh%t. As a person on the ground in China very frequently, I can tell you it is a tiny fraction of the economic size of the USA, likely smaller than Japan. Yes Sheridan has poor maths, but the truth is that China is a lightyear away from the USA. Remember their figures are all fiction anyway. Lies told to get foreigners to pour their money in, losing it hand over fist. Almost no foreigners ever turn a profit in China, it’s a money trap for most.

  3. He makes a great point about ethnicity.
    We shouldn’t be helping by hyphenating our citizens for the CCP.
    Best to switch to the broader region.

    “We have 2m **Australians** of *Asian heritage*.”
    That should be our terminology.

    • Exactly. They conflate Chinese ethnicity with the PRC and that’s going to cause us a lot of problems. We should be clear that they are not China, they’re a ruling clique of murderers and thugs.

  4. For those wanting to get into this topic a bit more then these 3 books are worth a read:

    Dinny McMahon: China’s Great Wall of Dept (Aussie Author)
    Clive Hamilton: Silent Invasion
    Simon Winchester: Pacific – the ocean of the future

    Over to you


    • Dinny McMahon: China’s Great Wall of Dept (Aussie Author) is available for free on Audible for new users.
      A great read/listen. Highly recommended and reinforces my decision to never buy Chinese debt anytime soon.

    • I think i’ll wander down to my local bookshop here in HK….oh…i forgot, its shut as the dude who owns has gone missing..

  5. Jumping jack flash

    It all depends on the debt.

    If the US can finally crack the code for infinite debt then they’ll have it made while China is still flailing wildly underneath their debt mountain.

    The other thing is if the US crack the code for infinite debt, they’ll likely let us in on the secret before they let China know. If they ever do.

    Just think, we can heal our economy, wages will rise, house prices will hit a few million each – whatever it takes, it doesn’t matter. Its just numbers. My house is now worth 10 million shiny debt dollars, so pay up. Bank says yes! Affordable by definition! I’m 10 million dollars richer, instantly.

    People will no longer need to work regular jobs at all. Just let the debt do the work and swap houses with each other while you charge $100/hour to trim somebody’s hedge once every few weeks… or better yet, get an import to trim the hedge for free while you charge them out at $100/hour and sit back and enjoy utopia!

    Meanwhile, China is crushed under their enormous mountain of debt.

    • “Meanwhile, China is crushed under their enormous mountain of debt.
      —-Jumping j f
      That “enormous mountain of debt” will be backed by 30,000 tonnes of debt… that’s what the reset will discover.

  6. The USA has 21 aircraft carriers because it is the world bully and wants to control the world.

    China has only 1 aircraft carrier because it has no plans to interfere with other countries’ sovereignty.
    It knows that if it gets involved in war with the USA it won’t require another 20 aircraft carriers… China itself will be one big aircraft carrier.
    The USA, as has occurred over the last 70 years, will be the aggressive invader.

    • Absolutely correct, the USA needs the aircraft carriers to enforce its hegemony over the world of which the following is a good explanation of:

      Not that it would matter in a conflict with China as aircraft carriers are only good when you want to commit genocide and war crimes against third world countries. China and any other country with modern missile technology would destroy them within minutes in a war which is why they are not building many themselves.

    • SnappedUpSavvyMEMBER

      China has only 1 aircraft carrier because it has no plans to interfere with other countries’ sovereignty…..

      so they wont build another one then?

    • Ahem. Chinese mainland acting as an aircraft carrier? Lol.

      US carriers won’t be sailing up to Shanghai harbour. They’ll be 5000 km away, controlling the sea lanes and cutting off China’s oil, gas, coal and everything else supplies.

      Chinese mainland? who gives a f#ck.

      Oh PS. Pipelines? Lol. Even ISIS can blow up a pipeline.

      • China’s main supplier of oil and gas is Russia with which it shares a sizeable land border. Americas navy will be rather ineffective at stopping those supplies.

      • Completely wrong Jarrod. Google it. Top Chinese gas supplier is Turkmenistan. Pipeline. Australia number two. Sea. Slightly under half its gas comes by pipelines (which as mentioned are easy to blow up). The rest by sea.

        Oil a similar picture. Just under half from Middle East alone (ships). Well under half vía pipeline. Kaboom splash.

      • Ok Jarrod. I get it. Reading is not high on the list of astroturfer skill sets. But let me help you.

        1. I mentioned oil above. Yes, Russia is the top supplier of crude to China. No, Russia does not supply “most” of China’s oil. It supplies less than 16%. The majority of China’s oil imports arrive by ship, not land.

        2. That Russian pipeline has been promised multiple times, over several years. It ain’t built. PS don’t go relying on Russia Today articles for anything, apart from bear wrestling news.

        3. Pipelines are easy to blow up IN A WAR, which is the scenario we are discussing (someone mentioned sinking twenty aircraft carriers…). Of course not many pipelines are getting blown up at the moment. That’s because there are not many wars on at the moment. There was one for a while though, in Syria. Pipelines got shellacked.

      • Ok Arrow2 I get it civility and reading is non existent in your set of skills. So I will make it simple for someone of your limited intellect. You put ‘most’ in quotes despite it not appearing in any of the sentences I wrote. Or to put it another way you just made something up so that it fitted with you delusion. That is a trump level of craziness right there.

        Yes pipelines may be easy to blow up in a war. But no one sane would start a hot war with nuclear armed China unless they want to turn the world to ash, and hence your argument has zero merit. America is not going to have great success sneaking people in to blow up the pipelines in a way that gives them sufficient deniability to avoid retaliation and hence it will not happen.

  7. Michael Hudson has an article on the China USA trade war that is worth a read:
    The concern about China’s huge debt is probably overdone. China has a current account surplus and provided their debts are in their own currency or owed to their own banks then their is no problem with the debt as it can either be waived by the banks or money can be printed to get rid of it. The US on the other hand has run persistent current account deficits and if it was not for the petrodollar would be entirely screwed.
    Also using PPP is better than GDP it still is not a great measure of an economy. If we look at exports alone China should be ahead of the USA and especially if considering that a significant greater portion of Chinese trade is manufactured goods where the US would have a greater proportion of services.

    • You do understand that PPP is not a good measure of how much you can buy / bribe overseas. It’s only useful to compare domestic purchasing power. In the article above, which is about raw power internationally, you want to use nominal GDP, ie total economic weight.

      Put it another way, a strong, skinny guy can do more pushups than a very strong, bulky guy. That’s PPP GDP. It measures how much you can lift yourself.

      But in an arm wrestle between the two, total gross strength wins. That’s nominal GDP.

      • If onje country’s GDP is mainly consumption (in its various forms including homes, retail shops and infrastructure serving those) and the other country’s GDP is mainly production
        – then the second Country will be stronger with more muscle. The first just has a whole lot of blubber which makes it slow and weak.

      • Flawed we are talking power not efficiency. The question is whose economy is more attractive to others, whose can buy more tradeables, whose can buy more loyalties, whose can prop up more allies.

        To win this competition you want nominal GDP. In a currency people actually want.

  8. Errrrrrr does anyone appreciate the difference between PPP and nominal exchange rates?????

    In PPP terms, the 2 economies are a lot closer than you would think.

    Many of China’s markets are already bigger than the US, in raw volume terms, which should tell you a lot…

    • See above. PPP is the wrong measure if you are talking about a raw contest of power.