Annual GDP Estimates by Production and Income Approaches in China

1. Annual GDP Estimates by Production and Income Approaches in China Jin Hong Department of National Accounts-NBS Nov.30, 2009

2. Content • Industrial Classification • Data Sources • Measurement of Value Added by Industries • Major Improvement in Recent Period • Challenges • Main Issues need to be Consulted

3. I. Industrial Classificationin national accounts • One-digit category follows Three Industries Division Regulation • 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 detail industries

4. I. Industrial Classificationin national accounts (Continue) • Four-digit category has been implemented in annual GDP estimates, which includes 94 industries altogether. • Two-digit category has been used in Quarterly National Accounts. QNA is measured by 16 industries.

5. II. Data Sources • Statistical survey data in NBS Censuses and regular sampling surveys • Financial data Financial questionnaire from 18 administrative departments

6. II. Data Sources (Continue) • Administrative records Ministry of Finance, Administration of Taxation, People’s Bank of China, China Insurance Regulatory Commission, China Securities Regulatory Commission, Administration for Industry & Commerce, Ministry of Civil Affairs Table2：Data sources of value added by industries

7. III. Measurement of Value Added by Industries Annual GDP Production approach: 4 industries in Agriculture, Forestry, Animal husbandry and Fishing Mix with Production approach and income approach: 39 industries in Mining, Manufacturing, Production and distribution of Electricity, Gas and Water. Income approach: The other 51 industries.

8. III. Measurement of Value Added by Industries (Cont.) • Direct Method Output and valued added are calculated directly based on the data sources. 51 industries: Agriculture, Industry, Railway Transport, Post, Finance, Social Welfare, etc. Account for 55% of 94 industries and 63% of GDP.

9. III. Measurement of Value Added by Industries (Cont.) • Value Added Extrapolation Method 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: Construction, Wholesale and Retail, Accommodation and Restaurants, etc, Account for 33% of 94 industries and 33% of GDP.

10. III. Measurement of Value Added by Industries (Cont.) • Reference Indicator Estimation Method 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 : Storage, Computer Services, Resident Services, etc. Account for 12% of 94 industries and 4% of GDP.

11. IV. Major Improvement in Recent Period • Changes of Value Added Measurement of Individual Businesses 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.

12. IV. Major Improvement in Recent Period (Cont.) 2. Improvements of Output Measurement of Finance The output of financial intermediation services indirectly measured (FISIM) is calculated by reference rate approach which 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.

13. IV. Major Improvement in Recent Period (Cont.) 3. Changes of Value Added Measurement of Finance • The headquarter and all branches of People’s Bank of China are treated as general bank enterprises to calculate their output and value added. • Value added of securities is subdivided into more detailed. According to the Second Economic Census’s data, value added of securities is subdivided into three parts, which are securities, fund and futures. • The treatment of stamp duty on securities transactions is improved.

14. IV. Major Improvement in Recent Period (Cont.) 4. Adjustments of Output Measurement of Headquarters Output of Headquarters = aggregates of operating expense + management expense + financial expense + depreciation at current year

15. IV. Major Improvement in Recent Period (Cont.) 5. Improvements of Value Added Measurement of Some Industries at Constant Price • Finance industry. -- Bank: Price index deflation method. The deflator is calculated by deposit and loan interest rates and inter-bank interest rates. --Securities: Quantity extrapolation method, the growth rate of stock transaction. --Insurance: Mixed method which combined with quantity extrapolation method and price index deflation method. --Other financial service: Same as Bank.

16. IV. Major Improvement in Recent Period (Cont.) • Household’s owner-occupied dwellings: Quantity extrapolation method, the volume indicator is floor space of residents.

17. IV. Major Improvement in Recent Period (Cont.) • Wholesale trade: 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.

18. IV. Major Improvement in Recent Period (Cont.) • Education, health and other non-market activities: Quantity extrapolation method with some related volume indicators or price index deflation method.

19. Ⅴ. Challenges • Industrial classification in GDP estimates should be more detailed • Make use of administrative records of all the departments and improve the data quality as much as possible

20. Ⅵ. Main Issues need to be Consulted • 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?

21. Ⅵ. Main Issues need to be Consulted • How to calculate depreciation for household’s owner-occupied dwellings Depreciation Value = value of urban households’ owner-occupied dwellings × depreciation rate (2%) = (Per capita 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%)

22. Ⅵ. Main Issues need to be Consulted • How to calculate value added for Real Estate Exploitation Management 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.

23. Thanks for your attention.