Accounting Method for China’s Quarterly GDP by Expenditure Approach

1. Accounting Method for China’s Quarterly GDP by Expenditure Approach QIU, Qiong Dept. of National Accounts, NBS

2. I. Introduction • 1. Starting in 2000 • 2. Accumulative accounting • 3. 3 levels of classification • 4. Base year: year 2000, with a base year change each 5 years • 5. Data sources: statistical information, accounting information

3. I. Introduction • 6. Accounting process • 1) Initial accounting: 15 days after each quarter • 2) Initial check: 45 days after each quarter • 3) Final verification: after the final verification of the annual data by expenditure

4. II. Accounting Method for China’s Quarterly GDP by Expenditure Approach in Current Prices • Due to lack of fundamental information, accounting for China’s quarterly GDP by expenditure in current prices is mainly calculated based on the relevant indicators.

5. 1. Household Consumption Expenditures • 1) Initial accounting: It is calculated from the total retail sale of consumer goods. First, we calculate the proportion that the total retail sale of consumer goods is in the household consumption expenditures of last year. Then, we use the proportion to calculate the quarterly household consumption expenditures.

6. 1. Household Consumption Expenditures • 2) Initial check: Using the household survey materials, we calculate the rural and the urban data respectively. • The Rural Household Consumption Expenditures =cash consumption expenditures of the current quarter ×the annual rural household consumption expenditures of last year/the annual rural household consumption expenditures in cash of last year

7. 1. Household Consumption Expenditures • 2) Initial check • The Urban Household Consumption Expenditures =urban household consumption expenditures from the household survey×the annual urban household consumption expenditures meeting the requirements of accounting of last year/the annual urban household consumption expenditures from the household survey of last year

8. 2. Government Consumption Expenditures • Quarterly government consumption expenditure is calculated according to the quarterly expenditure data of financial budget. 1) The day-to-day professional expenditure =the administrative and the institutional expenditure concerned of financial budget - the expenditure transferred - the irregular expenditure(e.g. capital construction expenditure, etc. )

9. 2. Government Consumption Expenditures • 2) According to the proportion that the day-to-day professional expenditure of the budget is in the government consumption expenditures of the same period of last year, we calculate the quarterly government consumption expenditures of this year. • Due to restriction of information available, no initial check.

10. 3. Gross Fixed Capital Formation • Gross fixed capital formation =total investment in fixed assets in the whole country +investment in fixed assets less than 0.5 million yuan +increased fixed assets of the trial-produce of new products +value added in selling the commercial house +increment of intangible fixed assets -value for purchasing old buildings and old equipments -rate for land requisition, landpurchasing and the related migration compensation

11. 4. Increase in Inventory Quarterly increase in inventory of the initial accounting and of the initial check =increase in inventory of industry +increase in inventory of wholesale and retail trade =changes of the industrial finished products in stock +changes of the commodities of wholesale and retail trade in stock

12. 4. Increase in Inventory • Increase in inventory of industry =increase in inventory of industrial enterprises above designated size /p p=value added of industrial enterprises above designated size/gross value added of all industrial enterprises

13. 4. Increase in Inventory • Increase in inventory of wholesale and retail trade =increase in inventory of enterprises above designated size in wholesale and retail trade/r r=total value of sales from commodity above the designated size/gross value of sales from commodity by all the wholesale and retail trade

14. 5. Net Exports • For calculating the quarterly net exports of the initial accounting and of the initial check, we use the statistical data from the Customs, together with the data concerned from Balance of Payments of the same quarter of last year. The step is as follows: First, according to data of the same period of last year, we calculate the exchange coefficients between the data of commodities’ exports and imports from the Customs’ statistics and that of goods’ exports and imports from the Balance of Payments.

15. 5. Net Exports • Secondly, using the exchange coefficients from Step 1, we convert the data of goods’ exports and goods’ imports from the Customs’ statistics calculated in RMB into that identical with those from Balance of Payments, thus we get the gross exported and the gross imported of goods and the net exports of goods meeting the requirements of Balance of Payments.

16. 5. Net Exports • Thirdly, we determine the proportion of goods exported or imported in the export of goods and services or in the import of goods and services during the accounting period. According to the changing trend of the proportion of goods exported or imported in the export of goods and services or in the import of goods and services in each quarter of last year, and the changing conditions of this proportion of each quarter in current year, we make adjustments for the proportion of the same period in last year, and the adjusted is used as the proportion for the accounting period.

17. 5. Net Exports • Fourthly, using the proportion of goods exported in the export of goods and services and that of goods imported in the import of goods and services, we calculate the export volume and the import volume of goods and services respectively, and get the net exports of goods and services. • For the final verification of quarterly net exports, we directly adopt the data of imports and exports from Balance of Payments.

18. 6. The Final Verification • We do benchmarking adjustments to the annual final verification data and get the final verification data of China’s quarterly GDP by expenditure approach. Taking the year of 2005 as an example, we make benchmarking adjustments for the quarterly data of 2005 according to composition of the annual GDP by expenditure approach in 2005, i.e. we distribute annual data of the final verification to each quarter according to the proportions the quarterly (accumulated) values of indicators are in the annual data of 2005 before the final verification. In mathematical terms, there is:

19. 6. The Final Verification • Xq,05 refers to the absolute magnitude of the estimated value in Quarter q in 2005 after the adjustment. • Iq,05 refers to the absolute magnitude in Quarter q in 2005 before the adjustment. • A05 refers to the absolute magnitude of the annual data of the final verification in 2005. • Letter q=quarter 1, quarter 1 to 2, quarter 1to 3.

20. III. Accounting Method for China’s Quarterly GDP by Expenditure Approach in Constant Prices • For quarterly GDP by expenditure approach in constant prices, we all adopt the “flop-out” method, deflating components of the quarterly GDP by expenditure approach in current prices using the corresponding price indices respectively.

21. 1.Household Consumption Expenditures in Constant Prices • Data of the initial accounting and of the initial check of household consumption expenditures include those of the rural household consumption expenditures and those of the urban household consumption expenditures. We calculate the urban and the rural household consumption expenditures in constant prices according to the urban and the rural household consumption price indices respectively, using the “flop-out” method.

22. 2.Government Consumption Expenditures in Constant Prices • First, using the proportion that the day-to-day professional expenditures and the CFC is in the annual government consumption expenditures of last year as the weight, we conduct weighted average work for the household consumption price indices and the investment price indices of the fixed assets, so as to get the government consumption price index. • Then, we get the government consumption expenditures in constant prices from the government consumption expenditures in current prices divided by the government consumption price index.

23. 3.Fixed Capital Formation in Constant Prices • For the initial accounting of fixed capital formation in constant prices, we use the investment price index of fixed assets to deflate the gross fixed capital formation. • For the initial check of fixed capital formation in constant prices, we use different price indices to deflate the corresponding items respectively. The concrete situation is as follows:

24. 3.Fixed Capital Formation in Constant Prices • For total investment in fixed assets in the whole country, investment in fixed assets below 0.5 million yuan, fixed assets increased by the trial manufacture of the new products and formed by the prospecting of minerals, we use the price index of investment in fixed assets to deflate them. For the value added from sales of commercial houses, we use the sale price index of commercial houses. For the value of computer software, we deflate it by the price index of household services. For value of the purchased old equipment, we use the purchasing price index of equipment, tools and instruments. For value of purchasing old buildings, land and the other rates, we use the price index of the other rates.

25. 4. Increase in Inventory in Constant Prices • For increase in industrial inventory, we use the ex-factory price index of industrial products to deflate it. • For increase in inventory of wholesale and retail trade, we use the retail price index.

26. 5. Net Exports in Constant Prices • Gross imports and gross exports of goods in constant prices are calculated by deflating the import price index of goods and the export price index of goods respectively. We get the net exports of goods from gross exports of goods in constant prices minus the gross imports of goods in constant prices. According to the quarterly price indices of the imported and the exported commodities compiled by Customs Bureau, we calculate their simple arithmetic average number, on which we determine the price indices of the imported and of the exported goods.

27. 5. Net Exports in Constant Prices • For the imported and the exported services in constant prices, since there have not been the corresponding price indices at present, we calculate them referring to the import and the export price indices of goods and the price indices of the service items.

28. IV. Major Issues in China’s Quarterly GDP Accounting by Expenditure Approach • 1. The scope of China’s quarterly GDP accounting by expenditure approach is not overall due to the insufficiency of basic information, while the requirements of the basic information is not identical, thus the accounting quality is affected.

29. IV. Major Issues in China’s Quarterly GDP Accounting by Expenditure Approach • 2. Classification of Expenditure Items Is Too Crude. • 3. Lack of the Price Indices Supporting Quarterly GDP Accounting by Expenditure Approach

30. IV. Major Issues in China’s Quarterly GDP Accounting by Expenditure Approach • Work to do: In order to improve China’s quarterly GDP accounting by expenditure approach, it is necessary for us to supplement the insufficiencies of the basic information, to improve the current statistical survey system, to improve and perfect the statistical means and system, to establish the fundamental framework of the price index system and to set up a set of collecting system of statistical information supporting China’s quarterly GDP accounting by expenditure approach.