Author: Ian Castles, Crawford School, ANU

In his review of the Australian Government’s defence white paper, Greg Sheridan, Foreign Editor of The Australian, says, ‘just for the record’, that the US economy is six times as big as China’s. He claims that the white paper’s assertion that China has the potential to overtake the US as the world’s largest economy by 2020 is ‘silly’ (‘A battle of words’, Weekend Australian, 2-3 May, p. 22).

Sheridan also claims that the use of the purchasing power parity (PPP) method to compare the relative size of economies is ‘sleight of hand’ which gives rise to a ‘statistical illusion’ and ‘a meaningless measure’.

He 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 is now only three times as big as China’s, not six times as big (IMF, World Economic Outlook Database, April 2009).

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Author: Ian Castles

Greg Sheridan, foreign editor of The Australian, has criticised Prime Minister Rudd for suggesting that ‘by 2020 China could replace the United States as the world’s largest economy.’ He claims that this is ‘impossible’ because ‘the US economy is five times as big as China’s’ (‘No pandering to China in PM’s Asia Plan‘, The Australian Literary Review, November 2008).

This is wrong. Even if the GDPs of the two countries are ‘compared’ using the discredited practice of exchange rate-based conversion, this year’s estimated GDP of the US is only 3.4 times that of China. And if the purchasing power parity (PPP) results of the International Comparison Program (ICP) are used, the US GDP is only 1.8 times that of China (IMF World Economic Outlook Database, October 2008).

The latter measure implies that the estimates cited by Mr Rudd would be realised if, as can reasonably be expected, China’s average growth rate in the coming decade exceeds that of the US by 5 percent annually. The Prime Minister’s statement is unexceptionable.

The 2005 ICP was the largest and most complex global statistical project ever undertaken. Read more…