The Overview of GDP Estimates and
Related Issues in China
Department of National Accounts, NBS
JIN Hong
Gross Domestic Product (GDP) Estimates at current price can be obtained by three approaches (production, income and expenditure approaches). However, the GDP released by NBS is the result combined production approach with income approach.
I. Industrial Classification
According to the Industrial Classification & Codes of National Economy (GB/T 4754-2002) and the data availability of China, four levels industrial classification have been used in annual GDP Estimates. One-digit category follows Three Industries Division Regulation directly, which was established by NBS in 2003, but the tertiary industry does not include International Organizations. Two-digit category is basically equal with GB/T 4754-2002 at Two-digit category(section level). Three-digit category is basically equal with GB/T 4754-2002 at division level, but real estate is subdivided into group level, and individual-owned house service is added. Four-digit category is consistent with three-digit category basically, and Mining, Manufacturing, Production and distribution of electricity, gas and water have been subdivided into more detailed industries based on practical experience and special demand (see Annex 1 attached).
II. Data Sources
Data which used in GDP estimates are mainly derived from statistical survey data in NBS, and the others are derived from financial data and administrative records in other government departments. Statistical sources include censuses and regular sampling surveys. Financial data mainly refer to financial questionnaire from 18 administrative departments which were established as regular statistical surveys in 2008. Administrative records refer to the data from Ministry of Finance, Administration of Taxation, People’s Bank of China, China Insurance Regulatory Commission, China Securities Regulatory Commission, Administration for IndustryCommerce, Ministry of Civil Affairs, and so on.
The detailed data sources are contained in the Annex 2 attached.
III. Measurement of Value Added by Industries
Industrial value added are measured by 94 industries respectively each year, and then add together to obtain annual GDP. Due to the restrictions on data sources, only 4 industries (Agriculture, Forestry, Animal husbandry and Fishing) can be calculated by production approach.39 industries in Mining, Manufacturing, Production and distribution of Electricity, Gas and Water are calculated by production approach and income approach respectively at first, and then obtain the final estimates by means of weighting. The other 51 industries are calculated by income approach. Due to the restrictions on data sources of production approach and income approach, the measurement of value added by industries can be classified as the following categories.
1. Direct Method
If the data sources can cover the whole industries, direct method is adopted in estimates. That is to say, the total output and valued added are calculated directly based on the data sources. 51 industries are adopted direct method, including Agriculture, Industry, Railway Transport, Post, Finance, Social Welfare, etc, which account for 55% of 94 industries and 63% of GDP.
2. Value Added Extrapolation Method
If the data sources only cover some part of industries, rather than the whole industries, value added extrapolation method is adopted in estimates. That is to say, value added is calculated based on data sources at first, and then extrapolation is applied to calculate the valued added of the whole industries using the proportion in basic year (census year). 31 industries are adopted value added extrapolation method, including Construction, Wholesale and Retail, Accommodation and Restaurants, etc, which account for 33% of 94 industries and 33% of GDP.
3. Reference Indicator Estimation Method
If data source is not enough in some industries, or no available survey data can be used to calculate value added, then reference indicator estimation method is adopted in estimates. That is to say, based on the total output or value added in basic year (census year), growth rates of some reference indicators which can describe the real development of related industries are regarded as the growth rates of related total output or value added, and then value added are calculated by extrapolation. 11 industries are adopted reference indicator estimation method, including Storage, Computer Services, Resident Services, etc, which account for 12% of 94 industries and 4% of GDP.
IV.Major Improvement in Recent Period
In 2008, China has carried out the SecondEconomic Census. Accordingly, GDP estimation methods have been made a series of adjustments and improvements.
1. Changes of Value Added Measurement of Individual Businesses
In the First Economic Census in 2004, the questionnaires of individual businesses contain all the value indicators which can be used in value added measurement, so it is possible to use census information directly to obtain value added. However, according to the Design of Second Economic Census, Only the number of self-employed households (including the total number of self-employed households, the number of self-employed households with commercial registration, the number of self-employed households with tax registration) and the number of employees by industries at section level can be obtained, and the value indicators which can be used in value added measurement have not been surveyed. Consequently, comparing to First Economic Census, many changes was taken place in value added measurement of individual businesses in Second Economic Census.
According to the tax data and the limited census data, value added of individual businesses is calculated indirectly, and the basic approach is as follows: Firstly, we calculate the amount of taxes per household in each industry. Secondly, the amount of taxes per household is multiplied by the number of self-employed households to obtain tax revenue by industries. After that, tax revenue is divided by legal tax rates to obtain output data. Finally, value added by industries can be calculated with output and valued added rates of small-scale enterprises in relevant sectors.
2. Improvements of Output Measurement of Finance
The output of financial intermediation services indirectly measured (FISIM) is calculated by reference rate approachwhich is recommended by SNA 2008. The output of actual service does not include activities unrelated to financial services, such as exchange gains and exchange losses. The output of Bank and securities do not contain investment revenue any more.
In annual GDP estimatesof the First Economic Census, FISIM is equal to the sum of loan interest revenue, investment revenue, rental revenue and revenue from transactions with financial institutions obtained by banks minus deposit interest expense and expense from transactions with financial institutions.In annual GDP estimatesof the SecondEconomic Census, the measurement of FISIM changeto reference rate approachwhich is recommended by SNA 2008, which is equal to indirect income obtained by banks from depositors due to depositing activities plus indirect income obtained by banks from borrowers due to lending activities.
The formula is:
Output of bank intermediation services indirectly measured = Indirect income obtained by banks from depositors due to depositing activities + Indirect income obtained by banks from borrowers due to lending activities
where
Indirect income obtained by banks from depositors due to depositing activities
=annual average deposits of financial institutions × reference rate – actual interest income of deposits
Indirect income obtained by banks from borrowers due to lending activities
=actual interest income of loans – annual average loans of financial institutions × reference rate
Reference rate =(deposit interest rate + loan interest rate – risk rate)÷2
3. Changes of Value Added Measurement of Finance
⑴The headquarter and all branches ofPeople’s Bank of China are treated as general bank enterprises to calculate their output and value added.
⑵Value added of securities is subdivided into more detailed.According to the Second Economic Census’s data, valueadded of securities is subdivided into three parts, which are securities, fund and futures.
⑶The treatment of stamp duty on securities transactions is improved. Based on theprinciples of GDP estimates, only stamp duty of securities transactions paid by agencies can be treated as production tax of securities, not includingstamp duty on securities transactionspaid by individuals.
4. Adjustments of Output Measurement of Headquarters
Headquarters belong to Business Service, and their output is measured by expenditure side:
Output of Headquarters = aggregates of operating expense, management expense and financialexpense + depreciation at current year
5. Improvements of Value Added Measurement of Some Industries at Constant Price
5.1 Finance industry. Value added of bank at constant price is calculated using price index deflation method, and the deflator is calculated by deposit and loan interest rates and inter-bank interest rates. Value added of securities at constant price is calculated by the growth rate of stock transaction using quantity extrapolation method. Value added of insurance at constant price is calculated with mixed method which combined with quantity extrapolation method and price index deflation method. Other financial service at constant price is obtained by bank deflator and value added at current price.
The detailed formulasare as follows:
⑴Bank
Deflator of bank = [(Interest revenue - interest expense) ÷ bankoutput] × deposit and loan rate index + [(revenue from transactions with financial institutions–expense from transactions with financial institutions) ÷ bank output] × inter-bank interest rate index + {[bank output - (Interest revenue - interest expense) - (revenue from transactions with financial institutions–expense from transactions with financial institutions)] ÷ bank output} ×consumption and investment price index
Deposit and loan rate index = (deposit interest rate indexof one-year + loan interest rate index of one-year) ÷ 2
Inter-bank interest rate index = interest rate index between banks
Consumption and investment price index = consumer price index × [final consumption expenditure ÷ (final consumption expenditure + gross fixed capital formation)] + fixed assets investment price index × [gross fixed capital formation ÷ (final consumption expenditure + gross fixed capital formation)]
⑵Securities
Value added of securities at constant price is calculated using quantity extrapolation method.
Value added of securities at constant price =Value added of securities at constant pricein last year × stock trading volumeindex
⑶Insurance
Deflator of insurance = (investment revenue÷insurance output) × deflator of securities+ [(insurance output－investment revenue) ÷insurance output] × consumption and investment price index
Deflator of securities = value added index of securities Industry at current prices ÷ value added index of securities Industry at constant prices
5.2 Household’s owner-occupied dwellings service. Value added of household’s owner-occupied dwellings service at constant price is calculated using quantity extrapolation method, and the volume indicator is floor space of residents.
5.3 Value added of wholesale trade at constant price. For the part which engaged in wholesale activities,simple average of producer price index and price index for raw materials, fuel and power is used as deflator. For the part which engaged in customs activities, import price index is used as deflator.
5.4 According to the different activities, value added of education, health and other non-market activities at constant price are calculated using quantity extrapolation method with some related volume indicators or price index deflation method.
Ⅴ. Challenges
1. Industrial classification in GDP estimates should be more detailed
Before the First Economic Census in 2004, industrial classification in GDP estimates only was divided into 16 industrial sectors in china. After that, it can be divided into 94 sectors because of more data sources obtained in the First Economic Census. However, comparingto some other countries, industrial classification in GDP estimatesis not detailed enough in china, which is only based on section level and there is no othermore detailed classification. Generally speaking, developed countries have more than 200 industries in GDP estimates, so it should get further industrial classification in china.
2. Make use of administrative records of all the departments and improve the data quality as much as possible
Although statistic departments have much detailed statistical survey data, some other countries still make use of administrative records of all the departments and institutions in quarterly national accounts. Use of the administrative records not only can reduce costs, but also it can review the data quality of estimated indicatorsfrom the other sides. For example, although Canada has statistical sales data in retail industry, they often use federal retail tax and provincial retail tax from tax department to adjust the valueadded in retail industry.
Though the other administrative departments have a large number of administrative records in china, resource sharing is still in low level. NBS should do a lot of work to integrate the administrative records resources of all the departments under its responsibility. It should also make use of those administrative records as much as possible in GDP estimates, and review the data quality from the other sides.
Ⅵ.Main Issues need to be Consulted
1. How to obtain the data of industrial activity units
Industrial activity units are basic accounting unit in GDP measurement, but the statistical data are collected based on legal units in china. How to transfer legal unit data to industrial activity unit data?
2. How to calculate depreciation for household’s owner-occupied dwellings
After the first Economic Census in 2004, the measurement of depreciation for household’s owner-occupied dwellings have been revised, and the revision included two aspects: Firstly, the method is changed using prices based on current construction costs rather than historical prices to measure household’s owner-occupied dwellings. Secondly, the depreciation rate used in the imputed calculation of rural households’ owner-occupied dwellings is changed from 2% to 3%, and the rate of urban counterpart from 4% to 2%. Take urban households’ owner-occupied dwellings for example, the formula is:
Depreciation Value = value of urban households’ owner-occupied dwellings ×depreciation rate (2%)= (Percapita floor space of urban residents× annual average of urban population × urban dwellings construction cost of unit area) × the proportion of private dwellings×depreciation rate (2%)
Where “urban dwellings construction cost of unit area” is measured at current year price. In recent years, the prices of building materials rose rapidly in china, so construction cost of unit area increased rapidly. However, most of the residential dwellings built in previous years rather than current year. If we use the replacement prices mentioned above, will overestimate the depreciation of household’s owner-occupied dwellings?
2004 / 2005 / 2006 / 2007urban dwellings construction cost of unit area
growth rate (%) / 1080 / 1096
1.5 / 1300
18.6 / 1398
7.5
rural dwellings construction cost of unit area
growth rate (%) / 226 / 268
18.4 / 288
7.5 / 314
9.0
Depreciation value
growth rate (%) / 4061 / 4511
11.1 / 5712
26.6 / 6653
16.5
The proportion of depreciation in production GDP estimates (%) / 2.5 / 2.5 / 2.7 / 2.6
3. How to calculate value added for Real Estate Exploitation Management
Currently, we use the enterprises’financial statements to calculate the output and value added in real estate exploitation management industry. In practice, we find that their financial statements do not reflect their real business circumstances accurately,because these financial statements have some relationship with their business circumstances in previous years, not only in the current year. As a result, the performance of financial statements is not so good in the year when real estate sales are good, and on the contrary, the performance is not so bad in slump year. How to calculatevalue added for real estate exploitation management by income approach based on these data?
Welcome to make some comments on the overview of GDP estimates in china, and give some proposed solutions about the existing issues.
1
Annex：
Table1: Industrial Classification in Chinese National Accounts
One-digit categories / Two-digit categories / Three-digit categories / Four-digit categoriesPrimary industry / Agriculture, Forestry, Animals husbandry and Fishery / Agriculture
Forestry
Animals husbandry
Fishery
Services in support of agriculture / Agriculture
Forestry
Animals husbandry
Fishery
Services in support of agriculture
Secondary industry / Industry / Mining / Mining and Washing of Coal
Extraction of Petroleum and Natural Gas
Mining of Ferrous Metal Ores
Mining of Non-ferrous Metal Ores
Mining and Processing of Nonmetal Ores Mining of Other Ores
Manufacturing / Processing of Food from Agricultural Products
Manufacture of Foods
Manufacture of Beverage
Manufacture of Tobacco
Manufacture ofTextile
Manufacture of Textile Wearing Apparel, Footware, and Caps
Manufacture of Leather, Fur, Feather & Its Products
Processing of Timbers, Manufacture of Wood, Bamboo, Rattan, Palm, and Straw Products
Manufacture of Furniture
Manufacture of Paper and Paper Products
Printing, Reproduction of Recording Media
Manufacture of Articles for Culture, Educationand Sport Activities
Processing of Petroleum, Coking, Processing of Nuclear Fuel
Manufacture of Chemical Raw Material and Chemical Products
Manufacture of Medicines
Manufacture of Chemical Fiber
Manufacture of Rubber
Manufacture of Plastic
Manufacture of Nonmetallic Mineral Products
Manufacture and Processing of Ferrous Metals
Manufacture & Processing of Non-ferrous Metals
Manufacture of Metal Products
Manufacture of General Purpose Machinery
Manufacture of Special Purpose Machinery
Manufacture of Transport Equipment
Manufacture of Electrical Machinery & Equipment
Manufacture of Communication Equipment,Computer and Other Electronic Equipment
Manufacture of Measuring Instrument andMachinery for Cultural Activity & Office Work
Manufacture of Artwork, Other Manufacture
Recycling and Disposal of Waste
Production and Distribution of Electricity,Gas and Water / Production and Supply of Electric Power and Heat Power
Production and Distribution of Gas
Production and Distribution of Water
Construction / Construction of Building & Civil Engineering
Architectural Installation
Architectural Decoration
Other Construction / Construction of Building & Civil Engineering
Architectural Installation
Architectural Decoration
Other Construction
Tertiary industry / Traffic, Transport, Storage and Post / Transport Via Railway
Transport Via Road
Urban Public Traffic
Water Transport
Air Transport
Transport Via Pipeline
Loading, Unloading, Portage and Other Transport Services
Storage
Post / Transport Via Railway
Transport Via Road
Urban Public Traffic
Water Transport
Air Transport
Transport Via Pipeline
Loading, Unloading, Portage and Other Transport Services
Storage
Post
Information Transmission, Computer Services and Software / Telecom & Other Information Transmission Services
Computer Services
Software Industry / Telecom & Other Information Transmission Services
Computer Services
Software Industry
Wholesale and Retail Trades / Wholesale Trade
Retail Trade / Wholesale Trade
Retail Trade
Hotels and Catering Services / Hotels
Catering Services / Hotels
Catering Services
Financial Intermediation / Bank
Security Activities
Insurance
Other Financial Activities / Bank
Security Activities
Insurance
Other Financial Activities
Real Estate / Development and Management of Real Estate
Property Management
Agency Services for Real Estate
Other Real EstateActivities
Owner Occupied Dwellings Services / Development and Management of Real Estate
Property Management
Agency Services for Real Estate
Other Real EstateActivities
Owner Occupied Dwellings Services
Leasing and Business Services / Leasing
Business Services / Leasing
Business Services
Scientific Research, Technical Service and Geologic Prospecting / Research and Experimental Development
Professional Technical Services
Services of Science and Technology Exchanges and Promotion
Geologic Prospecting / Research and Experimental Development
Professional Technical Services
Services of Science and Technology Exchanges and Promotion
Geologic Prospecting
Management of Water Conservancy, Environment and Public Facilities / Management of Water Conservancy
Environmental Management
Management of Public Facilities / Management of Water Conservancy
Environmental Management
Management of Public Facilities
Services to Households and Other Services / Services to Households
Other Services / Services to Households
Other Services
Education / Education / Education
Health, Social Security and Social Welfare / Health
Social Security
Social Welfare / Health
Social Security
Social Welfare
Culture, Sports and Entertainment / Journalism and Publishing Activities
Broadcasting, Movies, Televisions and Audiovisual Activities
Cultural and Art Activities
Sports Activities
Entertainment / Journalism and Publishing Activities
Broadcasting, Movies, Televisions and Audiovisual Activities
Cultural and Art Activities
Sports Activities
Entertainment
Public Management and Social Organization / Public Management and Social Organization / Public Management and Social Organization
Table2：Data sources of value added by industries