Accounting Methods of China’s Annual Expenditure-Based GDP
WU You
Department of National Accounts, NBS
Department of National Accounts of National Bureau of Statisticsdeveloped expenditure-based GDP estimates on trial basis in 1989, and added expenditure-based GDP estimates to annualreport in January 1990 for the first time. “Program of Explanatory Notes on Gross Domestic Product Indicators and Accounting Methods” was issued in all regions in October 1993. And annual expenditure-based GDP estimates system was established formally, which was carried out nationally and regionally. In 1995, National Bureau of Statistics firstly published national expenditure-based GDP figures for 1978-1994 and figures of 30 provinces, municipalities and autonomous region’s figures for 1993 in "China Statistical Yearbook”. According to 1993 SNA, Department of National Accounts of National Bureau of Statistics has improved and revised the expenditure-based GDP accounting system for many times since 2000. At present, the state and regions have formally established the annual expenditure-based GDP accounting system, and are studying and establishing discrete expenditure-based GDP accounting system.
I. The frame and classification of expenditure-based GDP accounting
Annual GDP by expenditure approach consists of three parts:final consumption expenditure, gross capital formation and net export of goods and services. The frame for computation is:
The classificationof expenditure-based GDP accounting:
First-class classification / Second-classclassification / Third-class
classification
Household Consumption Expenditure(Rural and Urban Household) / Food
Clothing
Residence
Household Appliances and Services
Health Care and Medical Services
Transport and Telecommunications
Education, Culture and Recreation and Services
Financial Service
Insurance Service
Owner-occupied dwelling Service
Consumption Expenditure in kind
Other Goods and Services
Government Consumption Expenditure / Current Operating Expenditure
Depreciation of Fixed Assets
Gross Fixed Capital Formation / Residential Construction
Non-Residential Construction
Machinery and Equipment
Land reclamation expenditures
Mineral exploration costs
Software
Others
II. Household Consumption Expenditure
Household Consumption Expenditure can be divided into Rural Household Expenditure and Urban Household Expenditure. Household Consumption Expenditure includes (a) expenditureon goods and services directly with money, (b) expenditure on goods and services in the form of payment and transfer in kind, (c) goods produced and consumed by households themselves, (d) expenditure on financial intermediate services, (e) expenditure on insurance services, (f) expenditure on owner-occupied dwelling services.
According to the characteristics of the consumption of urban and rural households in China, rural and urban household consumption expenditure can be divided into 11 categories:
FoodClothing
Residence
Household Appliances and Services
Health Care and Medical Services
Transport and Telecommunications
Education, Culture and Recreation and Services
Financial Services
Insurance Services
owner-occupied dwelling services
Other Goods and Services
- Calculationat current price
Household Consumption Expenditure is mainly based on the data from sample survey of rural and urban households carried out by NBS and other statistics. It is calculated by categories above.
(1)Expenditure on Food, Clothing, Residence, Household Appliances and Services, Health Care and Medical Services, Transport and Telecommunications, Education, Culture and Recreation and Services, expenditure in kind, Others= Consumption expenditure Per Capita (relevant category in Rural and urban household survey) × annual average number of residents
And,
Annual average number of residents =(the number of residents at the beginning of the year+ the number of residents at the end of the year) ÷2
(2) Expenditure on financial Service includes financial intermediate services indirectly measured (FISIM) and explicit financial services consumed by rural and urban household.
And,
FISIM consumed by household
= (annual average of savings deposits+ annual average of personal housing accumulation fund deposits +annual average of consumption loan) *(interest of loans – interest rate of deposits)/2
Explicit financial services consumed by households are calculated basing on related financialdataof financial institutions.
(3) Household consumption expenditure on insurance servicesrefers to the expenditure resulted from the fact that residents involve in the insurance service provided by insurance institutions.
Household consumption expenditure on insurance services = Gross output of Insurance * insurance claim of households/ total insurance claim
(4)The value of imputed consumption expenditure of household owner-occupied dwelling services is equal to the imputed rent. When the imputed rent is inavailable, the cost of housing is used. The formula is:
The imputed consumption expenditure of the urban households owner-occupied housing services =Repair and maintenance cost of urban households owner-occupied dwelling+ management fees of urban households owner-occupied dwelling+ imputed depreciation of households owner-occupied dwelling
And, imputed depreciation rate of household owner-occupied dwellings is 2% for urban area and 3% for rural area.
(5) Consumption expenditure in kind is calculated by total non-cash incomeper capita of households and average number of households.
(6) Consumption expenditure on other goods and services means the expenditure except above, including expenditure on jewelry, hair beauty appliances, cosmetics, hotel accommodation, funeral fee, etc, which is calculated by per capita expenditure of miscellaneous goods and services of households and average number of households.
2 .Calculation method at constant price
Household consumption expenditure at constant price is calculated by rural and urban residents, and deflated by relevant price indices respectively. Categories of household consumption expenditure and related price index are as follows:
Household consumption categories / Price index categoriesfood / General food price index
clothing / Clothing price index
residence / Residence price index
Household facilities, articles and services / Household facilities, articles and services price index
Health care / Health care price index
Transportation and communication / Transportation and communication price index
Recreation, education and culture articles / Recreation, education and culture articles price index
Financial and Insurance services / weighted average of Consumer price index and fixed assets investment price index
Owner-occupied dwelling service / Renting price index
Other goods and services / Personal services price index
III. Government consumption expenditure
Government Sectors includesadministrative and non-profit institutional units of various types. There are: (1) Service Activities for Agriculture, Forestry, Animal Husbandry and Fishing; (2) Scientific Research, Technical Service and Geologic; (3) Management of Water Conservancy, Environment and Public Facilities; (4) Nursery and Bury Service of Services to Households and Other Services; (5) Education; (6) Health, Social Security and Social Welfare; (7)Culture, Sports; (8) Public Management and Social Organization.The main data sources of the calculation of government consumption expenditure areDefense White Paper and current operating expenditure from Ministry of Finance.
1. Calculation at current price
Government Consumption Expenditure= Current Operating Expenditures– Operating revenue+ Depreciation of Fixed Assets
And,
Current Operating Expenditures= (Expenditures on Wages and Welfare+ Expenditures on Goods and Services+ Expenditures on National Defence) + (Subsidies on Individual and Families-PensionCosts-LivingAllowance-ReliefCosts-School Aid Costs- Production Subsidies)
Operating revenue of Government Sectors= Operating revenue of the national budget units
Depreciation of Fixed Assets=Original value of fixed assets* Depreciation rate (4%)
2. Calculation at constant price
Government Consumption Expenditure at constant prices is deflated in two parts: One is Depreciation of Fixed Assets and the other is the margin, equal to Government Consumption Expenditure minus Depreciation of Fixed Assets. The former is deflated by Producers’ Prices of Industrial Products; the latter is deflated by Consumer Price Index.
IV.Gross Fixed Capital Formation
According to the international standard and data source, Gross Fixed Capital Formation consists of 7 parts:Residential Construction,Non-Residential Construction,Machinery and Equipment,the value of land improvement, the prospecting of minerals, computer software,others.
That is below:
Gross Fixed Capital Formation = Residential Construction +Non-Residential Construction+Machinery and Equipment+the value of land improved+the prospecting of minerals+computer software+others.
Total investment in fixed assets is the main basic data and source for accounting Gross Fixed Capital Formation. Gross Fixed Capital Formation covers urban area investment, real estate development investment, rural fixed assets investment projects which is over500,000 Yuan; Statistical frequency is monthly and annual.Data are collected by the system of reporting form with complete enumeration.
1. Calculationat current price
（1）Residential Construction
The residence here refers to the building only for occupancy, for example, villa, apartment and dormitory. The formula is below.
Residential Construction=residential investment+ value-added of Residential sales- corresponding fees in land requisition, purchase and resettlement compensation.
Residential investment refers to the investment of the buildings only for occupancy, for example, villa, apartment, dormitory, etc.
Value-added of Residential sales refers to the difference in the accounting period between the sales value of residence and corresponding Investment completed, i.e. cost of project before buildings being sold. The formula is below.
Value-added of Residential sales = actual sale of residential buildings – (floor space of residential buildings ×cost of residential buildings completed)- investment in land development - corresponding fee in land requisition, purchase and resettlement compensation.
Investment in ResidentialLand development refers to upfront project investment of real estate companies. That is investment in road, water supply, power supply, land leveling.
The fee in land requisition, purchase and resettlement compensation refers to all kinds of land compensation fees and allowance for arrangement, that land developers contribute to government in the situation of both remise and transfer of the using right of State-owned land. These costs don’t increase the Gross Capital Formation, so it should be deducted from Investment in fixed assets completed.
（2）Non-residential construction
Non-residential construction refers to the building not for residence, for example, office, commercial business buildings, factory and storeroom, public infrastructure. The formula is below.
Non-residential construction
= Construction and installation of Total Investment in Fixed Assets in the Whole Country-investment in residential buildings
-cost of purchasing old buildings
-corresponding fee in land requisition, purchase and resettlement compensation
+ value–added of non-residential construction sales
Costs of purchasing old buildings: it is similar to the costs of purchasing old equipment, Costs of purchasing old buildings are included in Total Investment in Fixed Assets, but don’t increase the fixed assets, so it should be deducted from Investment in fixed assets completed.
Corresponding fee in land requisition, purchase and resettlement compensation in non-residential construction: It is similar to residence. It is included in completed investment in fixed assets, but it doesn’t increase the total fixed capital formation, so it should be deducted from fixed capital completed Investment.
Value-added of non-residential construction sales refers to the difference within the accounting period between the sales value of non-residential construction and corresponding completed Investment, i.e. cost of the project before sold. The formula is below.
Non-residential construction sales added value= commercial residential building actual sales revenue- residence actual sales revenue- (commercial residential building saleable area- residence saleable area) ×residential buildings cost- commercial land development investment- commercial land purchase fee.
（3）Machine and equipment
Machine and equipment refers to the equipment, tools and machines bought or made by enterprises and administrative institutions and reach the standards of fixed assets. The computation formula is below.
Machine and equipment= machine and equipment investment+ fixed assets investment below five hundred thousand Yuan- costonpurchasing old equipments.
Machine and equipment investment refers to the costs of equipment, tools and machines bought or made by enterprises and administrative institutions and reach the standards of fixed assets.
Fixed assets investments below 500 thousand Yuan: Since they are not included in total investment of fixed assets, and most of them are used to buy machine and equipment, these are estimated as0.2‰ of total investment in fixed assets.
Coston purchasing old equipments is included in total investment in fixed assets, but the costdoesn’t increase the fixed assets, so the cost should be deducted from the total investment in fixed assets.
（4）Land improvement costs
Land improvement costs refer to the investment inprojects examined and arranged by all levels of administrative departments of land resources in order to increase the amount of land, improve the quality of land or increase land productivity. They are considered as a part of gross fixed capital formation.
（5）Mineral exploration costs
Mineral exploration costs refer to the capital invested on underground mineral resource explorationby all sections and units of the whole society. They are part of intangible fixed asset.
（6）Computer software
Computer softwarerefers to the income of enterprises from developing, producing and selling software. They also are part of Intangible fixed asset.
2.Calculate method at constant price
Total fixed capital formation at constant price is computed by deflation. Items of total fixed capital formation at current price are deflated by corresponding price index.
Residence, deflated by construction and installation price index of fixed assets investment price index.
Machine and equipment, deflated by equipment and instruments purchasing price index of fixed assets investment price index.
Non-residential construction, deflated by construction and installation price index of fixed assets investment price index.
Land improvement cost, deflated by fixed assets investment price index.
Mineral exploration cost, deflated by fixed assets investment price index.
Computer software, deflated by computer software price index of retail price index.
V. Increase in inventories
The inventory includes the raw materials, fuels and reserve materials purchased by the production units, as well as finished products, semi-finished products, work-in-progress, etc. Increase in inventory refers to the market value of the change in physical inventory during the accounting period, i.e. the difference of the inventory value between the beginning and the end of the period minus the holding gains or lossesresulted from price fluctuation.
1. Calculate method at current price
Increase in inventory is estimated mainly by the value at the beginning and the end of the periodin the accounting records. But the holding gains or losses resulted from price fluctuation should be deducted when calculating the increase in inventory, because they are included in the inventory value in accounting records. The method is: adjust the inventory value at the beginning of the accounting period to the value atn the end of the period by related price indexes.
Formula is below.
Increase in inventories= inventory value at the end of the year-inventory value at the beginning of the year adjusted
And,
Adjusted inventory value at the beginning of the year = inventory value at the end of the year in accounting×related price index
Increase in inventories at current prices is computed by industries. The specific computation method is below:
（1）Increase in inventories in farming, forestry, animal husbandry and fishing
The increase in inventories in farming, forestry, animal husbandry and fishing is estimated in two parts: enterprise and farmer.
①Increase in enterprise inventories.
Limited by the data source, currently, only the increase in inventories of state-owned enterprises is estimated. The inventory value at the beginning is adjusted by faming products price index.
②Increase in farm family inventories: includes inventoryincreases fromraising pig, sheep and fowl, as well as the increase in grain reserves.
a. Inventory increase from raising raising pig, sheep and fowl= (Number in stock at the end- Number in stock at the beginning)×average unit price at the end
b. Inventory increase in grain reserves= (grain stock at the end- grain stock at the beginning)×average grain unit price at the end
（2）Increase in inventories on industry
Increase in industrial inventories consists of industrial enterprises above and below designated size. It is calculated by theeconomic census data in census years and estimated by census data in non-census year. The value of inventories at the beginning is adjusted by PPI.
（3）Increase in inventories of construction
Increase in inventories in construction consists of two parts gained from two kinds of enterprise. The first kind is construction enterprises of both general contracting contractors and professional contractors. The second kind is construction enterprises of work subcontractors and other construction enterprises without qualification criteria. Increase in inventories of the first kind is computed by their financial statement; and the second is estimated by economic census data. The value of the inventories at the beginning of year is adjusted by PPI.
（4）Increase in inventories on transport, storage and post
Increase in inventories on transport, storage and post is calculated by data of economic census in census years, estimated by finance data of state-owned enterprises of the State-owned Assets Supervision Administration Commission in non-census years. The value of transport inventories at the beginning of the year is adjusted by PPI of the means of production; the value of storage inventories at the beginning of the year is adjusted by Retail Price Indices; the value of post inventories at the beginning of the year is adjusted by PPI.
（5）Increase in inventories on wholesale and retail trades
Increase in inventories on wholesale and retail trades consists of wholesale and retail enterprises above and below designated size. Increase in inventories of wholesale and retail enterprises above the designated size is computed by related financial term tables obtained from Department of Trade and External Economic Relations of NBS. Increase in inventories of enterprise below the designated size is estimated by economic census data. The value of the inventories at the beginning is adjusted by Retail Price Indices.
（6）Increase in inventories on hotels and catering services