Economic Theory

High-level fantasy

The Chancellor of the Exchequer, George Osborne, is currently on an official visit to China. In today’s (21 September) Financial Times, he is quoted as having said in Beijing that:

‘Even if the Chinese economy isn’t growing in double digits, it will still be creating an economy of at least the size of the United Kingdom in the next five years’.

If the Chancellor was correctly reported here, one has to wonder what world he is living in. The size of a country’s economy is normally judged by its gross domestic product (GDP). Even if the comparison in this case is based – misleadingly – on GDP as converted into US dollars at the going exchange rate, the GDP of China in 2013 appears as three and one-half times that of the UK. On the alternative internationally accepted basis of purchasing power parity (PPP), the GDP of the UK in 2013, on the latest evidence from the International Comparison Program, appears as just over 15 per cent of that of China. On this latter basis, the economy of China overtook that of the UK in 1987.

Other comparisons for 2013 tell the same story. Thus the value of Chinese exports of goods and services for that year was close to triple that for the UK, while primary energy consumption was some fourteen times as high.

As firmer estimates for 2014 emerge, all such ratios can be expected to have higher values because of higher Chinese growth rates.

In the face of such readily available evidence, Osborne’s statement appears as absurd, as well as incidentally patronising.

It is worrying to think that such an error probably occurred because the Chancellor’s text had escaped scrutiny by his officials. It would be a lot more worrying if the words were actually taken from a Treasury brief.