THE ESTABLISHMENT, REFORM, AND DEVELOPMENT OF CHINA S SYSTEM OF NATIONAL ACCOUNTS. by Xianchun Xu*

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1 roiw_ Review of Income and Wealh Series 55, Special Issue 1, July 2009 THE ESTABLISHMENT, REFORM, AND DEVELOPMENT OF CHINA S SYSTEM OF NATIONAL ACCOUNTS by Xianchun Xu* Naional Bureau of Saisics of China This paper provides a sysemaic and comprehensive accoun of he esablishmen, reform, and developmen of China s Sysem of Naional Accouns, focusing on imporan changes in conceps and mehods in naional accouning during China s ransiion from he Sovie-ype Maerial Produc Sysem o he Unied Naions Sysem of Naional Accouns, as well as exising problems and challenges ha mus be faced in he furher developmen of he sysem. 1. Inroducion From he early years of he foundaion of he People s Republic o he iniial sage of he economic reform and opening up, China s Sysem of Naional Accouns (CSNA) was based on he Maerial Produc Sysem (MPS) ha was devised and used by he former Sovie Union and is saellie saes. These counries were characerized by heir highly cenralized planning economies (CPEs). Following he reform and he opening up of he economy, China gradually inroduced he Unied Naions Sysem of Naional Accouns (SNA) used by counries ha adoped he marke economy sysem, while mainaining he convenional MPS. Along wih he developmen of he socialis marke economy, he SNA gradually replaced he MPS as he official accouning sysem in China. Hence, he evoluion of CSNA can be divided ino hree sages: (i) he esablishmen and developmen of he MPS; (ii) he ransiion from he MPS o he SNA; and (iii) he developmen of he SNA. Saring in 1952, he firs sage is characerized by he esablishmen of he accouning for he gross producion value of indusry and agriculure as defined in he MPS. Saring in 1985, he second sage is characerized by he esablishmen of GDP accouning, as defined in he SNA, as a supplemenary measure o naional income in he MPS. Saring in 1993, he las sage is characerized by he abolishmen of he MPS and he adopion of he SNA. Boh he esablishmen of he MPS and he ransiion from he MPS o he SNA are of grea hisorical imporance. The adopion of he MPS was o mee he needs of naional planning and managemen under China s highly cenralized planning sysem, whereas he ransiion from he MPS o he SNA was o mee no only he needs of Noe: I am very much indebed o Harry X. Wu s deailed and insighful commens and helpful suggesions. I am also indebed o Michael Ward (who was a close friend of he Naional Bureau of Saisics of China (NBS) and myself, and recenly sadly passed away), for his srong suppor of NBS s work during he ransiion of CSNA and for his very kind help wih English expression in his paper. Helpful commens from wo anonymous referees are graefully acknowledged. *Correspondence o: Xianchun Xu, Naional Bureau of Saisics of China, 57 Yuean Nanjie, Xichengqu, Beijing , China (xuxc@sas.gov.cn). Journal compilaion 2009 Inernaional Associaion for Research in Income and Wealh Published by Blackwell Publishing, 9600 Garsingon Road, Oxford OX4 2DQ, UK and 350 Main S, Malden, MA, 02148, USA. 442

2 macroeconomic analysis and managemen in China s ransiion oward he marke sysem, bu also he needs of inernaional comparison given he world s changing economic and poliical siuaion. During he hird sage, China carried ou he firs Economic Census in 2004 (hereafer he 2004 Census), which consiues a milesone in he developmen of CSNA. By means of he 2004 Census, he Naional Bureau of Saisics (NBS) exended daa sources, disaggregaed basic classificaions, and improved he mehods of esimaion and he qualiy of he daa, all of which were measures ha resuled in furher developmen of he CSNA. To undersand he developmen of he CSNA in deph, he hird sage can be furher divided ino hree sub-sages: before, during, and afer he firs Economic Census. I should be noed ha despie remendous effors made in he ransiion, he laes CSNA is sill some disance from he SNA, he pracices of developed counries, and he requiremens by macroeconomic managemen, civil sociey and inernaional organizaions. The CSNA sill faces many problems and challenges, and hus requires furher revision and developmen. The remainder of he paper is organized as follows. In Secion 2, we race he esablishmen and developmen of he MPS in China, focusing on he basic concepual framework and accouning mehods. In Secion 3, we review he ransiion from he MPS o he SNA. In Secions 4, 5, and 6, we presen he developmen of he CSNA prior o he firs Economic Census, in he year of he firs Economic Census, and afer he firs Economic Census, respecively, focusing on changes of he key conceps and accouning mehods in deails. In Secion 7 we conclude he paper by discussing he problems and challenges faced by he CSNA Esablishmen and Developmen of he MPS in China The naional accouns of he People s Republic sared a he beginning of he 1950s. In 1952, he newly-founded NBS launched a naionwide survey of he gross producion value of agriculure and indusry, and esablished he corresponding accouning sysem for he wo secors. Laer on, he accouning coverage was expanded o five maerial producion secors, including agriculure, indusry, consrucion, ranspor, pos and elecommunicaions, and commerce (including caering services), i.e. he social gross producion value accouns. In 1954, following he heory and mehod of naional income ha was developed and used by he former Sovie Union, he NBS began o compile he accouns for producion, disribuion, consumpion, and accumulaion of naional income. Afer having sen a delegaion o he former Sovie Union o comprehensively survey is naional accouns in 1956, he NBS fully adoped he MPS and implemened i in China. The implemenaion resuled in he compilaion of a series of balance ables for such maers as he following: he producion, accumulaion, and consumpion of social produc; he producion, disribuion, and redisribuion of social produc and naional income; and labor resources and allocaion. Unforunaely, in he iniial sages, he compiling work came under he scruiny of he ani-dogmaism movemen during he Grea Leap Forward campaign ( ). The work was 1 Due o he limied space available, he discussion of he developmen of China s insiuional secors accouns and heir problems has been removed. I is however available on reques. The reduced curren version of he paper concenraes on problems in GDP esimaion. 443

3 criicized and he compilaion of mos of hese balance ables was ordered o cease on he grounds ha hey were rivial or overloaded wih deails. This was he firs major seback suffered by China s naional accouns. During he period of he Culural Revoluion ( ), China s naional accouns suffered a second major seback: all of he saisical offices were disbanded and heir saff were ransferred o perform physical labor in he counryside; of course, he compilaion of naional accouns haled compleely. China s naional accouning work recovered gradually afer he ending of he Culural Revoluion. The work on naional income in he MPS was rerieved firs. Moreover, by collecing and processing los daa again, he ime series of naional income ha had been inerruped for 10 years were esimaed in a makeup way. Subsequenly, he MPS-ype inpu oupu ables were compiled. In wha follows, we will mainly concenrae on he basic concepual framework and accouning mehods of he CSNA under he MPS The Producion-Side Naional Income Esimaion To elaborae he producion-side naional income accouning under he MPS we should sar wih he measure of he gross producion value for each of he five maerial secors, which is he basis for he esimaion of naional income. To be concepually accurae, we use gross maerial produc or GMP for he gross producion value. The GMP of agriculure is he gross value of agriculural producs produced in a given period, which is measured by he produc mehod, i.e. he quaniaive oupu of agriculural producs imes heir corresponding prices. The GMP of indusry (including mining; manufacuring; and elecriciy, gas and waer supply) is he gross value of he indusrial producs and works produced in a given period, which is measured by he facory mehod, under which an indusrial enerprise is reaed as a whole and only he final producs a he facory gae are couned while producs manufacured for he enerprise s own inermediae consumpion are excluded. The GMP of consrucion is he gross value of he consrucion aciviies conduced in a given period, which includes he values of consrucion, equipmen insallaion, and repairing of buildings and oher srucures. The GMP of ranspor, pos, and elecommunicaions in a given period is (a) he gross values of he ranspor services provided, which include receips from freigh ranspor, pipeline ranspor, loading and unloading services, and ranspor agencies, plus (b) he gross value of revenues from pos-elecommunicaion services provided. The GMP of commerce and caering services consiss of (a) he rade margin, i.e. he balance of he sales and he purchases, and (b) he business revenues of caering services (NBS, 1985a). The ne producion value (i.e. naional income 2 ) or ne maerial produc (NMP) is defined as he gross producion value or GMP minus maerial consumpion (MC) ha includes maerial producs, maerial services 3 and he depreciaion of fixed asses. There are wo approaches for measuring he NMP: he producion 2 The concep of naional income in he MPS is differen from ha in SNA as clearly discussed in his secion. 3 Maerial producs refers o agriculural and indusrial producs, and consrucion, while maerial services refers o services of ranspor, pos and elecommunicaions, and commerce and caering services. 444

4 approach and he income approach. The CSNA under he MPS used he wo approaches in he producion accouning inerchangeably, bu for mos years of he period he producion approach was used for agriculure while he income approach was used for oher secors. Le us begin wih he producion approach, assuming concepually i is applied o he whole economy, which can be expressed in a given period as follows: (1) NMP = GMP MC = NMP i imps ( ) where i (MPS) sands for he indusrial classificaion under MPS (which differs significanly from he classificaion under SNA), ha is, agriculure (A), indusry (I), consrucion (C), ranspor, pos, and elecommunicaions (T) and commerce and caering services (S). Therefore, (1a) i imps ( ) NMP = A NMP + I C T S NMP + NMP + NMP + NMP. Taking a view of he income approach, NMP is equal o he income paid o all producion facors used in maerial producion, ha is, for all maerial secors he NMP can be defined as: (2) imps ( ) i i i i i i NMP = NMP = W + WF + π + τ + κ + ω i i i i i i i where W sands for wages and salary of employees, WF are funds payable se aside proporionally by he sae for employees welfare, p sands for receivable profis, sands for various indirec axes paid by he maerial producion secors, k sands for (ne) ineress, i.e. he balance of ineres payable and ineres receivable, and w refers o all oher incomes (NBS, 1985a). Equaions (1) and (2) show he coheren consisency of he producion and income approaches in accouning for he producion of naional income under he MPS. Noe ha unlike he SNA he depreciaion of fixed asses is excluded in boh equaions, which is one of he disinc differences of he MPS compared wih he SNA. The aforemenioned esimaion of naional income refers o he esimaion a curren prices. Because of differen producion feaures of each maerial secor and differen daa sources, he approach for measuring NMP a consan prices also differed among secors. Specifically, a double deflaion approach was used in agriculure; 4 a single-deflaion approach was used ypically in indusry; a similar deflaion approach was also used in consrucion and commerce; and a volume index approach was used in ranspor, posal and elecommunicaion services. Below, he esimaion of NMP a he 1980 consan price for he indusrial secor is given as an example: (3) NMP I( 80 p) I I GMP = NMP I( 80 p) GMP. 1 4 The maerial consumpion of agriculure a consan prices was firs calculaed by muliplying he consumed quaniy of seeds, feed, ferilizers, pesicides, and fuels by corresponding consan prices. The resuls were hen subraced from he oal oupu measured a consan prices. 445

5 A specific se of consan prices for indusry, e.g. he 1980 prices, was par of he Sovie-ype comparable price sysem adoped under he MPS for he esimaion of naional income a consan prices. In cooperaion wih relevan auhoriies of he Sae Council, he NBS regularly worked ou he fixed prices of various indusrial producs a a base year (e.g. 1980), which were supplemened by provincial auhoriies. Then, individual enerprises applied hem o heir producs of differen ypes o calculae heir gross producion value (i.e. GMP) a consan prices. These daa were subsequenly aggregaed hrough regional bureaus of saisics a differen levels o arrive a he naional indusrial GMP a consan prices. Noe ha hrough he same reporing sysem he NBS also obained he naional indusrial GMP a curren prices a he same ime. So far, here have been five ses of consan prices of indusrial producs wih base years of 1952, 1957, 1970, 1980, and 1990, respecively. The daa for he indusrial GMP a consan prices are available from he Annual Repor of Indusrial Saisics (NBS, 1985a; Xu, 2001) The Expendiure-Side Naional Income Esimaion The expendiure of he naional income under he MPS or he ne maerial expendiure (NME) in a given period consiss of oal consumpion (C), i.e. maerial producs and services consumed in final use including household consumpion and social consumpion, and oal accumulaion (A), i.e. maerial producs accumulaed for maerial producion including fixed asses accumulaion and working asses accumulaion. The NME can be expressed by he following equaion: (4) NME = C + A = ( HC + SC )+( FA + WA ) where HC sands for household consumpion ha is defined as he value of own accoun producs (ypically by rural households), commodiies, culure and recreaion services, and housing, waer, and elecriciy consumed by household; SC sands for social consumpion defined as he value of office supplies, fuel, waer, and elecriciy, as well as ranspor, posal, and elecommunicaion services consumed by he non-maerial secors such as governmen, educaion, culure, healh, spors, science and echnological research, and social welfare; FA sands for fixed asses accumulaion ha is defined as he value of fixed asses ha are acquired minus he depreciaion of fixed asses; and WA sands for working asses accumulaion defined as he change in value of various working asses including he value of raw maerials, maerials and fuels reserved for producion, work-in-progress and semifinished producs in he producion process, finished or semi-finished producs ready for sale, as well as invenories held by commercial enerprises (NBS, 1985a). However, i should be noed ha in he CSNA under he MPS he expendiure of he naional income is no exacly equal o he producion of he naional income because he ne expor (ne value of goods and maerial services raded or EX - IM) is excluded in he sysem. Therefore, we can have he following relaionship when examining he balance beween producion and expendiure in he CSNA under he MPS: (5) NMP NME = EX IM. 446

6 However, under he MPS China did no develop proper price indices for differen expendiure componens. In paricular, here was no consumer price index and fixed asses invesmen price index. The price index of gross producion value of consrucion, price index of machinery and equipmen, price indices of gross producion value of agriculure and indusry were used for deflaing invesmen expendiure; cos of living index and reail price index including boh producer and consumer producs were used for deflaing household and social consumpion expendiure (for deails see NBS, 1985a, pp. 32 6). 3. Transiion from he MPS o he SNA 3.1. The Esablishmen of GDP Esimaion Along wih he marke-oriened reforms, he non-maerial service secors, such as finance and insurance, real esae, and educaion, developed quickly and made an increasing impac on he naional economy. Therefore, macroeconomic policy making required informaion abou hese services o se up appropriae policies for he healhy developmen of hese non-maerial services ha could coordinae wih oher secors. In response o such needs, he NBS began o add annual GDP esimaion ha included all economic aciviies, maerial and nonmaerial. This was implemened hrough a series of arrangemens beween 1985 and The esablishmen of GDP esimaion marks he sar of he ransiion of CSNA from he MPS o he SNA. The ransiion progressed gradually. In he early years of ransiion, NMP (i.e. naional income in he MPS) was sill he core indicaor, while he GDP played a supplemenary role and was used mainly o show he producion oucomes of he non-maerial services. Toward he end of his period, GDP had evolved ino a core indicaor in CSNA, while NMP became an indicaor ha was used mainly o compare wih he hisorical daa. In 1993, he abandonmen of he MPS marked he end of he CSNA ransiion from he MPS o he SNA Changes in he Sandard of Indusrial Classificaion The ransiion from he MPS o he SNA was also accompanied by a change in he Chinese sandard of indusrial classificaion (CSIC). The previous CSIC, ypically he 1972 version of CSIC (DITS, 1989, annex 4), served he needs of he MPS and hus was no longer suiable o he ransiion. The new CSIC ha promulgaed in 1984 (SPC, 1984) was designed for he ransiion bu confined o he available daa sources of he ime. The 1984 CSIC faciliaed he esimaion of producion-side GDP in he following non-maerial services: finance & insurance; echnology & producion services; household services; public uiliies; real esae; healh, spors & social welfare; educaion, culure & ars, and radio & elevision; scienific research; governmen & pary agencies, and social organizaions; and ohers (NBS, 1990). 5 Annual producion-side GDP esimaion began in 1985 (NBS, 1985b, 1985c), annual expendiureside GDP esimaion sared in 1989 (DBS, 1990), and quarerly producion-side GDP esimaion began in 1992 (NBS, 1992b). 447

7 Accordingly, he expendiure-side GDP changed o coordinae he changes in he producion-side GDP, ha is, he expendiure on non-maerial services was now couned as par of he oal expendiure. The classificaion of he expendiureside GDP was also alered o faciliae he change. While he oal consumpion was sill made up by household consumpion and social consumpion, under he oal invesmen he old fashioned accumulaion changed o fixed asse formaion and change in invenories. In addiion, ne expor of goods and (all) services was added o he oal expendiure esimaion. These changes can be compared wih equaions (4) and (5) (NBS, 1992a) Mehods of GDP Esimaion The Producion-Side GDP Esimaion In he early years of ransiion from he MPS o he SNA, he esimaion of he GDP was based on he naional income esimaes in he MPS. Firsly, a he secor level he NMP a curren prices was adjused o derive he gross value added (GVA) a curren prices, which is given as follows: (6) imps ( ) imps ( ) i i GVA = NMP NMC +δ where NMC denoes non-maerial consumpion as par of he inermediae inpus ha is kep in he NMP accouning under he MPS (see equaion (1)) and d denoes he depreciaion of fixed asses. We add MPS o he superscriped i o indicae his calculaion only refers o he radiional maerial secor. As defined by equaion (6), he GVA a curren prices of he i-h maerial secor was measured by deducing he non-maerial service expendiures (e.g. expendiures on finance and insurance service, adverisemen, consulaion, ec) from is NMP, and adding fixed asses depreciaion (DBS, 1990). (7) imps GDP = GVA + GVA. i ( ) isna ( MPS) i Equaion (7) 6 implies ha o obain he esimaion of he oal GDP for he counry, esimaion of gross value added by he non-maerial secors should be added o he GVA esimaes of all he maerial secors. To obain he GVA a consan prices for he maerial secors we use he implici NMP deflaor ha can be derived from equaion (3) o deflae he resuls of equaion (6). Sill using he indusrial secor as an example, he GVA in he 1980 consan yuan is esimaed as (8) GVA I imps NMP = GVA I( p) 80 NMP imps ( )( 80 p) ( ) 1 where he second facor of he righ-hand side of he equaion is direcly derived from equaion (3). 6 Here we use SNA minus MPS in he superscrip o indicae he non-maerial secors ha were excluded in he MPS. 448

8 Wih regard o he esimaion of he GVA of he non-maerial producion secors a consan prices, we deflae heir gross value-added a curren prices based on he service componens of he consumer price index (CPI) plus he reail price index (RPI) (DBS, 1990). The Expendiure-Side GDP Esimaion The expendiure-side GDP or gross domesic expendiure (GDE) a curren prices is esimaed by he following adjusmens: firsly, he household consumpion and social consumpion (HC and SC, see equaion (4)) are adjused by adding expendiures on non-maerial services; secondly, he depreciaion of fixed asses (d, equaion (6)) is added o he fixed asses accumulaion (FA, equaion (4)); lasly, he ne expor of goods and services is added o he oal expendiures (DBS, 1990). The GDE a consan prices is esimaed by relevan price indices newly consruced or improved for household consumpion, social consumpion, fixed asses formaion, and changes in invenories, respecively. Wih regard o he impor and expor of goods and services, hey are deflaed by he price indices of impored and expored goods, respecively, which are consruced using quaniy and value of raded goods in he Cusoms Saisics, assuming ha changes in prices of raded services are he same as hose in raded goods (DBS, 1990; NBS, 1992a) Reconsrucion of he Hisorical GDP In order o saisfy he needs of macroeconomic analysis and managemen for consecuive and comparable saisical daa, China made wo major reconsrucions of hisorical GDP by filling he gaps in ime series. The firs reconsrucion was conduced during for he period The second was conduced during for he period These wo reconsrucions included boh producion-side and expendiure-side GDP esimaions a boh curren and consan prices. 7 The coverage and mehods used in reconsrucion as well as deflaion are exacly he same as hose which were discussed earlier (DNA, 1997c; Xu and Tian, 1997; OECD, 2000). The resuls of he firs reconsrucion were firs published in a reduced form in he China Saisical Yearbook 1988 (NBS, 1988); he resuls of he second reconsrucion were published in 1997 in deail in a specific volume for China s hisorical GDP in (DNA, 1997c) Esablishmen and Developmen of China s Inpu Oupu Tables The inpu oupu able began in pracice from he 1970s o mee he needs of iner-indusry coordinaion in he naional planning. In cooperaion wih he Chinese Academy of Science (CAS) and he former Sae Planning Commission (SPC), he NBS compiled China s firs naional inpu oupu able in physical unis for 1973 (Elecronic Compuing Cener of SPC, 1979). In he early 1980s, 7 Here we refer o comparable prices ha link various consan prices used in hisory. See equaion (3) and relaed discussion. 449

9 in response o he requiremen of he planning auhoriies, he NBS, ogeher wih he SPC and oher governmen agencies, compiled anoher wo naional inpu oupu ables for 1981 and 1983, respecively (Economic Forecasing Cener of SPC and DBS, 1983; DBS, 1985). These ables used he framework of he MPS, of which he 1981 Inpu Oupu Table was consruced in moneary and physical unis and he 1983 Inpu Oupu Table was consruced in moneary unis. During he period of ransiion from he MPS o he SNA, he consrucion of inpu oupu ables also began a ransiion oward he SNA, aiming o incorporae he rapid developmen of he non-maerial secor ino he inpu oupu framework. This resuled in China s firs inpu oupu able for 1987 ha incorporaed SNA sandards in an MPS SNA hybrid framework. The 1987 Inpu Oupu Table disinguishes he maerial and non-maerial producion secors; hence, i can be convered ino eiher MPS or SNA in naional inpu oupu relaions. I can illusrae he feaures of he ransiion from he MPS o he SNA from he viewpoin of inpu oupu accouning. In 1987 he governmen decided o inroduce a naionwide, regular large-scale inpu oupu survey when he year number ends wih 2 or 7, based on which a full inpu oupu able would be consruced. Beween he full ables a naionwide small-scale survey was o be carried ou when he year number ends wih 0 or 5, based on which, ogeher wih an adjusmen of he coefficiens of he full ables, a simplified version of he naional inpu oupu able would be consruced (General Office of he Sae Council, 1987). 4. Furher Developmen of China s Sysem of Naional Accouns Under he SNA The period beginning wih China s formal adopion of he SNA in 1993 o he eve of China s firs Economic Census in 2004 saw furher imporan developmen of he CSNA, which was marked by China s firs eriary census-based GDP adjusmen in 1995, including an adjusmen o he ime series of , a revision of CSIC he implemenaion of he 1994 CSIC, measures o sandardize he sources of daa for GDP esimaion, he adopion of he full SNA principles in he inpu oupu accouns, he implemenaion of insiuional secor accouns and he balance shee, and he 2002 version of he CSNA Developmen of he CSNA Adjusmen Based on he Firs Teriary Secor Census As a srong legacy of he MPS, saisics on maerial producion received much more aenion han non-maerial service. As a resul, he eriary secor saisics of China had been very weak for a long ime. During , China conduced he firs Teriary Secor Census (for years 1991 and 1992), which provided relaively complee eriary secor saisics for he firs ime and filled he gaps in daa sources. In 1995, he NBS revised he GDP esimaes for 1991 and 1992 according o he census daa. In , o ensure he comparabiliy of 450

10 hisorical daa, 8 he NBS carried ou a comprehensive revision of is GDP ime series from 1978 o 1990, using he resuls of his census as a benchmark (DNA, 1997c; Xu, 1998, 2006b). Adjusmen According o he 1994 CSIC In 1994, China inroduced a new version of he Sandard of Indusrial Classificaion, i.e. he 1994 CSIC (NBTS, 1994), in line wih which he NBS furher adjused he indusrial classificaion of annual producion-side GDP esimaion (see NBS, 1994; DNA, 1997a). Compared wih he GDP classificaion based on he 1984 CSIC used during he MPS o SNA ransiion, he 1994 CSIC-based adjusmen has he following feaures: (1) services for farming, foresry, animal husbandry and fishery, geological prospecing and waer conservancy were separaed from comprehensive echnical and producion services; (2) sorage was separaed from commerce and caering services and grouped wih ranspor, posal and elecommunicaion services; (3) social services were separaely se up wih public uiliies and household services; (4) comprehensive echnical services and scienific research were now grouped ogeher raher han mixed up wih producion services. In addiion, some newly emerging aciviies were aken ino accoun in he new classificaion. 9 Furhermore, names of some secors were changed (DNA, 1997a). All oher secors remained he same as hose in he previous period. Sandardizaion of Daa Sources and Mehods in GDP Esimaion During his period NBS made coninual effors o sandardize daa sources and mehods in he GDP esimaion o improve he qualiy of he esimaion. This is refleced by a series of publicaions in 1997 on he sandards of he GDP esimaion based on he knowledge gained from hese experiences (DNA, 1997a, 1997b). These CSNA sandards were laer incorporaed in an English version published by OECD in In 2001 he NBS also compiled he Manual of GDP Esimaion in China (DNA, 2001). In 2003, he 2002 version of China s Sysem of Naional Accouns was released (NBS, 2003a), which was a milesone in he developmen of he CSNA. Procedures for GDP Esimaion, Revision and Disseminaion In 2003, he NBS decided on a hree-sage procedure for annual and quarerly GDP esimaion and disseminaion: preliminary esimaion, firs revision and final revision. The NBS also decided ha relaed daa should be published sysemaically a he same ime as he release of he GDP and ha explanaions of mehods used should also be published when necessary (NBS, 2003b). 8 The GDPs of 1991 and 1992 were revised upward by billion yuan (an increase of 7.1 percen) and billion yuan (an increase of 9.3 percen), respecively. 9 For example, real esae broker and agency are added o real esae, and managemen of naural proeced areas, leasing services, compuer applicaion services, and marke managemen services are added o social services (DNA, 1997a). 451

11 Periodic Economic Censuses and Regular Revision of Hisorical GDP Also in 2003, he Sae Council decided o conduc an economic census every five years in he 3rd and he 8h year of each decade (Sae Council, 2003). The NBS decided o esablish a formal sysem for revising GDP hisorical series ha is carried ou when new basic daa sources arise or when he mehods and basic classificaions are changed during successive censuses (NBS, 2003b) Improvemen of GDP Esimaion Improvemen of he Producion-Side GDP Esimaion During his period, he NBS sill employed a mixed approach ha combined he producion approach, he income approach, and relevan indicaor exrapolaion in he producion-side GDP esimaion. For hose secors or hose pars of secors for which sufficien daa was available, he producion approach or income approach was preferred, while for hose secors or hose pars of secors for which daa was incomplee, he relevan indicaor exrapolaion was adoped. Table 1 summarizes in principle he esimaion approach used in differen secors or componens of secors. Table 1 is self explanaory. Bu i should be emphasized ha he use of indirec indicaors in he esimaion of he secors and componens of secors for which direc daa are no available implies srong assumpions; hence esimaion bias was ineviable (DNA, 2001; Xu, 2004). While he ransiion o he SNA in he producion approach is sraighforward (see equaion (6)), he ransiion o he SNA in he income approach differs significanly from he MPS approach as defined in equaion (2). This is given in equaion (9): (9) isna ( ) i i i i GDP = GVA = LC + τ + δ + π i i i i i where LC denoes labor compensaion, denoes ne producion axes, d denoes he depreciaion of fixed asses and p denoes he operaing surplus or profis. Noe ha he SNA in he superscrip indicaes he difference in classificaion compared wih he MPS, implying he adjusmen ha is discussed in Secion 3.3. In 2002, he mehod for measuring he GVA a consan prices of agriculural and indusrial secors underwen significan changes. Prior o 2002, he deflaion mehod was basically similar o ha for measuring he NMP a consan prices in he MPS (see equaion (3) and relaed ex). Since 2002, agriculural producer price indices (agriculural PPI) have been used o deflae he GVA a curren prices in farming, foresry, animal husbandry and fishery, whereas he ex-facory price indices (i.e. indusrial PPI) have been used o deflae he indusrial GVA a curren prices. The volume movemen-based exrapolaion mehod has been used for ranspor, sorage, pos, and elecommunicaions. As for all oher secors, he single deflaion mehod has been used in he esimaion of heir GVA a consan prices (DNA, 2001; Xu, 2004). 452

12 Approach Producion approach Income approach Indicaor exrapolaion TABLE 1 The Producion-Side GDP Esimaion Approach and Sources of Daa Secors or Componens of Secors Farming, foresry, animal husbandry and fishery (gross value of oupu and inpu coss available) Indusrial enerprises above a cerain hreshold 1 (producion, sales and financial saisics available) Consrucion enerprises wih an official qualificaion 2 (complee, annual saisics available) The sae componens of ranspor, sorage, pos and elecommunicaion services (complee, annual saisics available) Wholesale & reail rade, and caering service enerprises above a cerain hreshold 3 (complee, annual saisics available) Indusrial enerprises below he hreshold 1 (sample survey based indicaors) Consrucion enerprises wihou an official qualificaion 2 (fixed asses invesmen saisics ogeher wih he value added raios of consrucion enerprises wih an official qualificaion) The non-sae componens of ranspor, sorage, pos and elecommunicaions (saisics on urnover volumes) Wholesale & reail rade, and caering service enerprises below he hreshold 3 (saisics on reail sales) Noes and Source: 1 The hreshold consiss of all sae-owned indusrial enerprises plus oher indusrial enerprises wih annual sales of 5 million yuan and above. From 2006 onwards, i changes o all incorporaed indusrial enerprises wih annual income of above 5 million yuan from principal operaion (NBS, 1997, 2006d). 2 The official qualificaion consised of all consrucion enerprises ha saisfy he requiremens of he Technical Capabiliy Grade of Consrucion Enerprises joinly formulaed by he Minisry of Consrucion and relaed minisries including he Minisry of Transporaion, he Minisry of Waer Conservaion, he Minisry of Informaion Indusry, and he Civil Aviaion Adminisraion of China (MOC, 2001). 3 The hreshold for wholesale enerprises is hose enerprises wih 20 or more workers and wih annual sales of a leas 20 million yuan (inernaional rade enerprises are all included in he wholesale indusry). The hreshold for reail enerprises is hose enerprises wih 60 or more workers and wih annual sales of a leas 5 million yuan. Caering services enerprises above he hreshold are defined as hose wih 40 or more workers and wih annual sales of a leas 2 million yuan (NBS, 1998). Improvemen of he Expendiure-Side GDP Esimaion In his period, he names of some componens of he expendiure-side GDP were differen from hose in he ransiion period from he MPS o he SNA. For example, oal consumpion was revised o final consumpion, social consumpion o governmen consumpion, oal invesmen o gross capial formaion, and fixed asses formaion o gross fixed capial formaion. All hese revisions are based on he names of componens of he expendiure-side GDP as in he 1993 SNA. The revised formula for he expendiure-side GDP or GDE a curren prices is hen as follows: (10) GDE = FC + GCF + NE = ( C + G )+( FCF + IVN )+( EX IM ). As defined in equaion (10), GDE is made up of hree componens: final consumpion (FC); gross capial formaion (GCF); and ne expors (NE), which can be furher decomposed ino household consumpion (C) plus gov- 453

13 TABLE 2 The Expendiure-Side GDE Esimaion Approach and Sources of Daa GDE Componen Daa Sources or Esimaion Approach Deflaion Approach Household consumpion (C) Governmen consumpion (G) Gross fixed capial formaion (FCF) Changes in invenories (INV) Expors (EX) & impors (IM) Commodiy consumpion esimaed by reail sales of consumer goods and household survey daa Own accoun consumpion and consumpion of income in kind esimaed using household survey daa Culure & recreaion services, and housing, waer, elecriciy & gas esimaed using household survey daa Consumpion of free medical care and collecive welfare esimaed using he saisics of insurance and welfare Consumpion of owner-occupied dwelling services esimaed using he floor space of owner-occupied dwellings and heir consrucion coss Consumpion of financial inermediaion services and insurance services esimaed using he oupu of finance and insurance and relaed saisics Source: DNA (2001), Xu (2004). Esimaed mainly using he final fiscal budgeary accouns Esimaed mainly using he saisics of fixed asses invesmen Esimaed using enerprise accouns from some minisries and relaed saisics Esimaed using he saisics of Balance of Paymens (BOP) Reail price indices (urban and rural) Agriculural producer price index and urban reail price index Consumer price indices (relevan componens) Urban consumer price indices (relevan componens) Price index of housing sales CPI and price indices of fixed asses invesmen Reail price indices, CPI, and price indices of fixed asses invesmen Price indices of fixed asses invesmen Agriculural and indusrial producer price indices Expor and impor price indices ernmen consumpion (G), gross fixed capial formaion (FCF) plus changes in invenories (INV), and expors (EX) minus impors (IM), respecively. The esimaion approach, sources of he daa used in esimaion, and price indices used in esimaing he GDE a consan prices are summarized in Table 2. Improvemen of Regional GDP Esimaion In 1985, provinces, auonomous regions, and municipaliies, in addiion o he naion as a whole, began o esimae he GDP. 10 The basic rule was ha he NBS should promulgae a uniform mehod for esimaing he GDP, while regional saisics bureaus of all levels should esimae he GDP of he corresponding region. As wih naional GDP esimaion, regional GDP esimaion was conduced boh annually and quarerly. The annual esimaion included boh 10 The GDP esimaion in he Tibe auonomous region began a lile lae. The es annual GDP esimaion began in 1985, while he official esimaion began in Quarerly GDP esimaion began in

14 producion-side and expendiure-side esimaion a curren prices and a consan prices, while he quarerly esimaion only included producion-side esimaion Improvemen of China s Inpu Oupu Tables Since he early 1990s, in order o adap o he marke economic condiions and o suppor he macroeconomic managemen, he NBS has coninued o improve he mehods for inpu oupu surveys and compilaion mehods. The NBS has compiled four full-scale naional inpu oupu ables in he SNA framework for 1987, 1992, 1997, and 2002, also known as benchmark ables, and four simplified ables for 1990, 1995, 2000, and The Chinese inpu oupu ables consis of he supply able, he use able, and he symmeric able (produc produc able). The number of producs and secors in he supply and use ables is he same. The produc and secor classificaion in he benchmark ables is more deailed han ha in he simplified ables. 11 In mos counries, inpu oupu ables are compiled by firs compiling he supply and use ables and hen deriving he symmeric inpu oupu able using he former wo ables as a basis. The pracice in China is differen: he NBS firs compiles he supply able and he symmeric inpu oupu able and hen derives he use able using he former wo ables as a basis. The main reason for his is ha he basic saisical unis for producion in China are enerprises raher han esablishmens. Some enerprises, especially large-scale ones, produce muliple producs. Compared wih he esablishmen, he principal produc of a large enerprise may be insignifican and is oupu may lack homogeneiy. The adopion of a convenional inpu oupu compilaion procedure would invariably resul in biased symmeric inpu oupu ables. The compilaion mehod of symmeric inpu oupu ables in China is referred o as he direc decomposiion mehod. Under his procedure, an enerprise individually classifies he various producs ino differen produc groups based on he uniform produc-group classificaion formulaed by he NBS. I hen decomposes is inpu coss ino inermediae inpus and primary inpu componens of various produc groups according o he uniform requiremens of he NBS. The NBS uses he inpu componen daa sources provided by enerprises, combined wih oher relaed sources, o compile symmeric inpu oupu ables. Since 1987, mos provincial bureaus of saisics have used he mehod formulaed by he NBS and hus compile heir own regional inpu oupu ables simulaneously. 5. Reform of China s Sysem of Naional Accouns in he Year of he Firs Economic Census The firs Economic Census, conduced in 2004, is he mos comprehensive census in he hisory of China in erms of is coverage. I covered all secors excep agriculure, i.e. indusry, consrucion, and all service secors excep service aciviies for agriculure, and hence provided a relaively comprehensive daa source for 11 The number of producs and secors in he benchmark inpu oupu ables was 117, 118, 124, and 122 in 1987, 1992, 1997, and 2002, respecively, and he number of producs and secors in simplified ables was 33, 33, 40, and 42 in 1990, 1995, 2000, and 2005 respecively. 455

15 improving China s GDP esimaion. Taking his opporuniy, he NBS inroduced several imporan revisions o GDP esimaion, which include daa sources, producion coverage, basic classificaion, esimaion mehods, and he reamen of some specific issues. Besides, he 2004 Census also improved insiuional secor accouns (DNA, 2007a, 2007b; Xu, 2006a) Revisions o Daa Sources for GDP Esimaion Revisions o Daa Sources for Producion-Side GDP Esimaion (1) Revisions o he financial saemens of enerprises: The revisions argeed he enerprises ha were no covered by he NBS annual saisics including consrucion enerprises wihou an official qualificaion, enerprises in wholesale, reail rade, and caering services below he hreshold, rening and business services enerprises, compuer and informaion ransmission service enerprises, and household services enerprises, ec. The 2004 Census included quesionnaires on he financial siuaion and operaing saus of hese enerprises, which enabled he NBS o derive heir value added more direcly (Census Office, 2004). (2) Revisions o daa sources for adminisraive and public insiuional unis: Annual value-added esimaes for adminisraive and public insiuional unis were based mainly on saisics on he compensaion of employees and final fiscal budge saemens, which was insufficien. In order o minimize his gap, he 2004 Census designed a quesionnaire o obain daa on he financial siuaion of hese insiuional unis ha allowed a comprehensive esimaion of heir value added (Census Office, 2004). (3) Revisions o daa sources for household unincorporaed enerprises: Annual esimaes of value added by household unincorporaed enerprises were mainly based on indirec indicaors, which could no reflec heir producion aciviies accuraely. The 2004 Census designed a quesionnaire for all such enerprises by secor, so as o provide a beer daa source for he esimaion of heir value added in he census year (Census Office, 2004). (4) Revisions o daa sources for hose esablishmens whose aciviies differ from he principal aciviies of he enerprises o which hey belong: Annual saisics provided very limied daa on such esablishmens. In he 2004 Census, a quesionnaire was designed specifically o obain he esimaes of value added by hose esablishmens (Census Office, 2004). Revisions o Daa Sources for Expendiure-Side GDP Esimaion (1) Revisions o daa sources for household consumpion expendiure: Annual esimaes of aggregae rural and urban household consumpion expendiures were mainly based on he value of reail sales of consumer goods, which had hree shorcomings. Firsly, annual saisics could no separae he reail sales of consumer goods sold o rural and urban households from hose sold o enerprises and adminisraive and public insiuional unis. Secondly, he reail sales of consumer goods also included consrucion maerials sold o rural and urban households for he consrucion of 456

16 heir houses, which should be correcly classified as invesmen raher han consumpion. Thirdly, analysis of he srucure of household consumpion expendiure was difficul wih such aggregae esimaes. In he year of he 2004 Census, he primary daa source for household consumpion expendiure was changed o he rural and urban household income and expendiure surveys o ackle hese problems. (2) Revisions o daa sources for he governmen consumpion expendiure: Esimaion of governmen consumpion expendiure has o be based on curren in-budgeary and exra-budgeary expendiures in final fiscal saemens. Annual saisics had o rely on rough exrapolaions because of he lack of a deailed breakdown of expendiure iems in he in-budgeary saemens. I was worse in he case of he exra-budgeary accouns ha had o rely on very arbirary assumpions. The Minisry of Finance recenly broke down he iems of in-budgeary and exra-budgeary oulay in final fiscal saemens ha were direcly used in he esimaion of governmen consumpion expendiure in he year of he firs Economic Census. (3) Revisions o daa sources for changes in invenories: This revision is mainly for hose indusry enerprises and wholesale and reail rade enerprises below he respecive hreshold. Annual esimaion of changes in invenories of hese enerprises relies on rough exrapolaions using indirec indicaors due o a lack of direc informaion on invenories. However, he 2004 Census obained acual invenory informaion and enabled changes in invenories o be esimaed direcly Revisions o Producion Coverage In he year of he Economic Census, he producion coverage of he GDP expanded as follows. (1) On he basis of he financial informaion of all ypes of service enerprises provided by he Census, some enerprise service aciviies ha are no covered in annual saisics can now be included in he GDP esimaion. (2) On he basis of he informaion colleced by he Census, service aciviies of adminisraive and public insiuional unis ha had no been included in annual saisics can now be included in he GDP esimaion. (3) On he basis of he informaion colleced by he Census, producion aciviies of hose household unincorporaed enerprises ha did no regiser wih he auhoriies can now be included in he GDP esimaion. (4) On he basis of he informaion colleced by he Census, he esablishmens whose aciviies differ from he principal aciviies of he enerprises o which hey belong can now be included in he GDP esimaion. In addiion, he GDP esimaion in he year of he Census expanded is coverage of producion aciviies using daa from he household survey in he following wo respecs: (1) housing ren services from households were included; and (2) domesic and personal services produced by employing paid domesic saff ha had no previously been esimaed, were included Revisions o he Basic Classificaions The basic classificaions ha had been used o esimae he annual GDP were revised in he year of he Census covering boh producion and expendiure 457

17 classificaions. Compared wih he 15 secor classificaion in annual esimaion, he producion-side GDP esimaion in he year of he Census exended i o 94 secors. I now corresponds closely o he wo-digi level in he 2002 CSIC (NBQS, 2002). The revisions o he classificaion of he expendiure componens broke down rural and urban household consumpion expendiures on he basis of separae consumpion expendiure iems from rural and urban household surveys. A beer classificaion of impors and expors of goods and services ha was based on daa from he Balance of Paymens was also implemened. Rural household consumpion expendiure and urban household consumpion expendiure were broken down ino 11 and 12 groups, respecively, o include such iems as expendiure on food, clohing, and dwelling services. The breakdown of he expor of goods included he expor of general goods, he expor of goods for processing, and he expor of oher goods no elsewhere classified. The breakdown of he expored services included eigh groups, consising of ransporaion, ravel, communicaion services, ec. The breakdown of he impor of goods and services was he same as he expor. Such breakdowns had never been possible in he annual GDP esimaion Revisions o he Mehods of GDP Esimaion The mehods used for esimaing he GDP in he year of he Census were revised in hree respecs. (1) As a resul of accessing new daa sources for enerprises, adminisraive and public insiuional unis, household unincorporaed enerprises, and auxiliary esablishmens, which were lack of financial daa in annual saisics, value added and changes in invenories could now be direcly esimaed raher han using he rough indicaor exrapolaion approach in he annual GDP esimaion. (2) Based on he changes of daa sources for household and governmen consumpion expendiure, new mehods were designed and inroduced ha replaced he old exrapolaion approach using indirec indicaors. (3) In he year of he Census hree GDP esimaion mehods were used simulaneously i.e. he producion approach, he income approach, and he expendiure approach and provided hree, more or less independen, GDP esimaes. In annual GDP esimaion hese hree approaches were only parially used. In paricular, i was no possible o esimae he value added by boh he producion and income approaches for each secor. As described in Secion 4.2, he esimaion of value added for agriculure and indusrial enerprises above he hreshold used he producion approach, while for indusrial enerprises below he hreshold and oher secors, he income approach or rough exrapolaions were used Revisions o he Treamen of Some Specific Issues In order o comply wih recommended inernaional sandards and hereby make China s GDP more comparable inernaionally, NBS inroduced new or improved reamens of specific issues, such as he following. (1) Revisions o FISIM (Financial Inermediaion Services Indirecly Measured) esimaes: In annual esimaion, he ne ineres of various secors was reaed as inermediae inpu and he deposi ineres of households was reaed as par of he value added of he financial secor. In he year of he Census, FISIM was disribued across secors and final users, eiher 458

18 as inermediae inpu for corresponding secors or as final use, respecively. The deposi ineres of households was no longer reaed as value added by he financial secor. (2) Revisions o compuer sofware reamen: In annual GDP esimaion, here was no definie rule as o wheher he acquisiion of compuer sofware should be reaed as inermediae inpu or fixed capial formaion. However, in he year of he Census, he acquisiion of compuer sofware was reaed as fixed capial formaion. (3) Revisions o he mehod for esimaing he depreciaion of owner-occupied dwellings: Firs, he esimaion of he value of owner-occupied dwellings was now based on curren consrucion coss (replacemen value) raher han hisorical coss. Second, he rae of depreciaion for rural household owner-occupied dwellings was changed from 2 o 3 percen, and he rae of heir urban counerpar from 4 o 2 percen, on he basis of he service life of rural and urban household owner-occupied dwellings using informaion from he household surveys. These changes ha have jus been documened had a significan effec on he esimaion of he GDP by he producion, income, and expendiure approaches Revisions o he GDP Esimaes Compared wih GDP esimaion in he annual saisics, he revisions ha were made in he year of he Census o daa sources, producion coverage, esimaion mehods, and he reamen of specific issues resuled in an increase in he producion-side GDP of 2.3 rillion yuan, 16.8 percen more han he unrevised GDP. The value added in he eriary secor rose by 2.13 rillion yuan or 48.7 percen, represening 92.6 percen of he oal increase. The share of he eriary secor in he GDP rose from 31.9 o 40.4 percen. The expendiure-side GDP in he year of he Census also increased by close o 1.8 rillion yuan or 12.6 percen more han he unrevised figure. Final consumpion expendiure conribued 1.2 rillion yuan o his increase, rising by 15.4 percen. Gross capial formaion increased by 10.0 percen o generae an exra 0.6 rillion yuan. The increases in final consumpion expendiure and gross capial formaion accouned for 64.8 and 35.2 percen of he oal increase, respecively. The share of final consumpion expendiure wen up from an unrevised esimae of 53.0 o 54.3 percen, while he share of gross capial formaion wen down from he unrevised esimae of 44.2 o 43.2 percen. The differences underline he fac ha he Economic Census provided a more subsanive daa basis for revising he producion, raher han he expendiure, esimaes. 6. The New Developmen of China s Sysem of Naional Accouns Afer he Firs Economic Census 6.1. Revision o Hisorical GDP Esimaes We have seen ha daa sources, producion coverage, esimaion mehods, and reamen for some specific issues improved significanly in he year of he 459