1. 1 Method of GDP Estimation in the Year of the First Economic Census of China Outline XU Xianchun Director-general of Department of National Accounts, National Bureau of Statistics July 28, 2005

2. 2 Content I.Significance of economic census for improving GDP estimation in China II.Purpose of formulating a plan of GDP estimation in the year of economic census III.Contents of the plan of GDP estimation in the year of economic census IV.Coverage of GDP estimation in the year of economic census V.Industrial Classification of GDP estimation in the year of economic census VI.Classification of expenditure items of GDP estimation in the year of economic census VII.Data sources variation of GDP estimation in the year of economic census VIII.Adjustment of Method of GDP Estimation in the year of economic census IX.Main data sources and basic method of GDP estimation in the year of economic census X.Adjustment of Some Special Treatment

3. 3 I.Significance of economic census for improving GDP estimation in China 1.Economic census provides relatively integrated and detailed data source (1) Be advantageous to expand the coverage of GDP estimation (2) Be advantageous to get GDP estimation at detailed industrial level (3) Be advantageous to improve the method of GDP estimation 2. Provide a good opportunity to make Chinese GDP estimation in line with international standard

4. 4 II.Purpose of formulating a plan of GDP estimation in the year of economic census 1.Improve the accuracy and completeness of GDP estimates through improving the scientificalness and standardization of GDP estimation in the year of economic census 2. Maintain the comparability between national data and regional data, or among regional data themselves 3. Increase the transparency of GDP estimation in the year of economic census to facilitate the users to understand, supervise and appropriately use GDP estimates.

5. 5 III. Contents of the plan of GDP estimation in the year of economic census 1. Clarify the coverage of GDP estimation in the year of economic census 2. Decide the industrial classification and expenditure item classification of GDP estimation in the year of economic census 3. Standardize the data sources and methods of GDP estimation in the year of economic census

6. 6 IV. Coverage of GDP estimation in the year of economic census 1. System of China’s National Accounts, 2002 explicitly defines that the production boundary in national accounts in China includes three parts : (1) Production of all goods and services produced and provided to or intended to provide to other units by the producers (2) Own account production of all goods either used as final consumption or used as fixed capital formation (3) Owner occupied dwelling services and own account household services provided by the paid household workers

7. 7 2. Omissions of GDP estimation in regular years Some activities are missed in China’s GDP estimation due to the constraint of data sources. (1) The activities of establishments which are different from the main activity of the corporation or other legal entities (2) Dwelling services rented by households (3) Household services provided by the paid nannies (4) Tutor services

8. 8 3. Expand coverage of GDP estimation (1) Fill in gaps of GDP estimation by census data a) The activities of establishments which are different from the main activity of the corporation or other legal entities (2) Fill in gaps of GDP estimation by the data from household survey a) Dwelling services rented by households b) Household services provided by the paid nannies c) Tutor services

9. 9 V.Industrial Classification of GDP estimation in the year of economic census 1. Further Partition of Industrial Classification (1) Change of the total number of industries In the previous years: 26 industries In the year of economic census: 95 industries (2) Specific description of the further partition a) Mining and quarrying is further partitioned into 6 industries, including Mining and washing of coal, Extraction of petroleum and natural gas etc. b) Manufacturing is further partitioned into 30 industries, including manufacture of Agricultural Products, manufacture of food products etc.

10. 10 c) Production and supply of electricity, gas and water is further partitioned into 3 industries, including Production and supply of electric power and heat power etc. d) Construction is further partitioned into 4 industries, including Construction of building and civil engineering etc. e) Transportation and Storage is further partitioned into Railway transportation, Road transportation, Air transportation etc.

11. 11 2. Adjust of industrial classification (1) Harvesting of Timbers and Bamboos is adjusted from Mining and Quarrying to Forestry (2) Primary Manufacture for Agricultural Product is adjusted from Manufacture to Service Activities for Agriculture, Forestry, Animal Husbandry and Fishing (3) Service Activities for Agriculture, Forestry, Animal Husbandry and Fishing is reclassified from the tertiary industry in the past to the primary industry in the new classification (4) Geological Prospecting and Water Conservancy is partitioned into two industries: Geological Prospecting, Water Conservancy. Geological Prospecting is adjusted as sub-industry of Scientific Research, Technical Services and Geological Prospecting; Water Conservancy is adjusted as sub-industry of Water Conservancy, Environment and Management of Public Equipment.

12. 12 (5) Telecommunication is adjusted from Post and Telecommunication to Telecommunication and Other Information Transmission Service. (6) Restaurants is adjusted from sub-industry of Wholesale and Retail Trade, Restaurant as sub-industry of Hotels and Restaurants (7) Urban Public Transportation /Household Services/ Hotels / Computer Application Services/ Renting are treated as Social Services in the old classification and adjusted to Transportation,Storage and Post/ Household Services and Other Services /Hotels and Restaurants /Information Transmission, Computer Hardware and Software Services /Renting and Business Services respectively.

13. 13 VI.Classification of expenditure items of GDP estimation in the year of economic census 1.The same expenditure items of GDP estimation in either economic census year or non-economic census years Final consumption Expenditure Household Consumption Expenditure Rural Household Consumption Expenditure Urban Household Consumption Expenditure Government Consumption Expenditure Gross Capital Formation Gross Fixed Capital Formation Changes in Inventories Net Export of Goods and Services Export of Goods and Services Import of Goods and Services

14. 14 2. The different expenditure items of GDP estimation in the year of economic census comparing to those in non-economic census years (1) Rural Household Consumption Expenditure a) Items in the year of economic census Consumption of Foods Consumption of Clothes Consumption of Dwellings Services Consumption of Family Appliances and Services Consumption of Health Care Services Consumption of Free Medical Care Services Consumption of Transport and Telecom Services Consumption of Appliance and Services of Education, Culture and Recreation Consumption of Financial Intermediation Services and Insurance Services Consumption of Owner-occupied Dwelling Services Consumption of Other Goods and Services

15. 15 b) Items in the non-economic census years Consumption of Traded Consumer Goods Consumption of Own Account Consumer Goods Consumption of Culture and Recreation Services Consumption of Housing, Water, Electricity and Gas Consumption of Owner-occupied Dwelling Services

16. 16 (2) Urban Household Consumption Expenditure a) Items in the year of economic census Consumption of Foods Consumption of Clothes Consumption of Dwelling Services Consumption of Family Appliances and Services Consumption of Health Care Services Consumption of Free Medical Care Services Consumption of Transport and Telecom Services Consumption of Appliances and Services of Education, Culture and Recreation Consumption of Financial Intermediation Services and Insurance Services Consumption of Owner-occupied Dwelling Services Consumption of Income in Kind Consumption of Other Goods and Services

17. 17 b) Items in the previous year Consumption of Traded Consumer Goods Consumption of Income in Kind Consumption of Culture and Recreation Services Consumption of Housing, Water, Electricity and Gas Consumption of Owner-occupied Dwelling Services Consumption of Free Medical Care Services Consumption of Collective Welfare Services

18. 18 (3) Export of Goods and Services In previous years, Export and Import of Goods and Services have no detailed breakdowns. In the year of economic census, Export and Import of Goods and Services are further partitioned into: Export (import) of Goods and Services Export (import) of Goods Export of General Goods Export of Processing Goods Export of Other Goods Export (import) of Services Export of Transportation Services Export of Tourism Services Export of Communication Services Export of Construction Services Export of Insurance Services Export of Computer and Information Services Export of Other Services

19. 19 VII. Data sources variation of GDP estimation in the year of economic census (1) The Financial statements data of the following types of corporation or other legal entities are not available in the regular statistics: Construction enterprises under the qualified level Wholesale and Retail Trade enterprise under the cut-off level Hotels and Restaurants enterprises under the cut-off level Computer Services and Software enterprises Renting and Business Services enterprises The economic census provided relatively detailed financial statements data on the above various types of corporations or other legal entities

20. 20 (2) Financial statements indicators for industrial enterprises under cut-off level in the sample survey questionnaires in regular statistics are different from those in the economic census (3) Data on the performance of individual business operators in various industries are very limited in regular statistics. Questionnaire on Operating Status of Individual Business Operators, are designed in the economic census (4) Data on the establishments whose activities are different from the main activity of the corporation or other legal entities are very limited in regular statistics. Therefore, Questionnaire on Basic Information of Establishments is designed in the economic census to provide data on value-added estimation of the establishments

21. 21 VIII. Adjustment of Method of GDP Estimation in the Year of Economic Census 1. Corporations or other legal entities whose financial statements are not available in the regular statistics (1) In previous years, value-added derived mainly indirectly by using the relevant indicators in the regular statistics (2) In the year of economic census, value-added derived mainly directly by using financial statements data 2. Industrial enterprises under cut-off level (1) In previous years, estimation method is based on financial indicators from the sample survey (2) In the year of economic census, estimation method is based on financial indicators in Questionnaire of Situations of Production and Operation of Industrial Enterprise under cut-off level

22. 22 3. Individual business operators (1) In previous years, estimation method is based on available indicators in regular statistics (2) In the year of economic census, estimation method is based on indicators in Questionnaire on Operating Status of Individual Business Operators 4. Establishments whose activities are different from the main activity of the corporation or other legal entity (1) In previous years, no clearly defined method due to data limitation, (2) In the year of economic census, estimation method is based on Questionnaire of Basic Information of Establishment

23. 23 IX.Main data sources and basic method of GDP estimation in the year of economic census 1. Basic method of GDP estimation in the year of economic census Three approaches are used to estimate GDP, which are production approach, income approach, and expenditure approach. GDP by production approach = Σvalue-added by production approach = Σ(output – intermediate input) GDP by income approach = Σvalue-added by income approach = Σ(compensation of employees + net production taxes + depreciation + operating surplus) GDP by expenditure approach = Final consumption expenditure + Gross capital formation+ net export of goods and services = (Household consumption expenditure + Government consumption expenditure)+(Gross fixed capital formation + Changes in Inventories)+(Export of goods and services – Import of goods and services)

24. 24 2. Main data sources of production-oriented GDP estimation in the year of economic census (1) Industry a) Questionnaire of Situations of Production of Industrial Enterprise above cut off level b) Questionnaire of Financial Situation of Industrial Enterprise above cut off level c) Questionnaire of Situations of Production and Operation of Industrial Enterprise below cut off level d) Questionnaire of Basic information of Establishment e) Questionnaire on Operating Status of Individual Business Operators (2) Construction a) Questionnaire of Situations of Production of General Contractor and Professional Contractor (Special Trade) of Construction Enterprise b) Questionnaire of Financial Situation of General Contractor and Professional Contractor (Special Trade) of Construction Enterprise c) Questionnaire of Situations of Production and Operation of Subcontractor and Construction Enterprises with Non-qualification Criteria d) Questionnaire of Basic information of Establishment e) Questionnaire on Operating Status of Individual Business Operators

25. 25 (3) Transportation, Storage and Post a) Questionnaire of Financial Situation of Transport, Post and Telecommunication Enterprise b) Questionnaire of Profit and Loss Statement of Railway Transportation Enterprise c) Questionnaire of Statement of Total Expenditure of Railway Transportation Enterprise d) Questionnaire of Financial Situation of National Post Agency e) Questionnaire of Financial Situation of Service Enterprise f) Questionnaire of Financial Situation of Administrative and Institutional Unit g) Questionnaire of Basic Information of Establishment h) Questionnaire on Operating Status of Individual Business Operators

26. 26 3. Changes in data sources and method of GDP by expenditure approach (1) Household Consumption Expenditure a) The population used for calculating Rural Household Consumption Expenditure and Urban Household Consumption Expenditure are data from the census, which are counted by current residence, rather than those used in the non-census years, which are counted by the registered permanent residence. b) In non-census years, Consumption of Traded Consumer Goods is calculated based on the indicator of Retails of Commodities, whereas in census years, it is based on the household consumption expenditure data from the Rural Household Survey and the Urban Household Survey (2) Government Consumption Expenditure a) In non-census years, Government Consumption Expenditure is estimated mainly based on government financial statements data b) In the year of economic census, it is estimated mainly using relevant data from the economic census

27. 27 (3) Gross Fixed Capital Formation Adjusted treatment of software expenditure (4) Changes in Inventories a) In the previous years, changes in Inventories is mainly estimated according to various statistics and financial statements b) In census year, it is mainly estimated by census data (5) Import and Export of Goods and Services a) In the previous years, Import and Export of Goods and Services have no detailed breakdowns. b) In the year of economic census, Import and Export of Goods and Services are estimated based on the detailed data of the Balance of Payment.

28. 28 X.Adjustment of Some Special Treatment 1 Adjustment of the treatment of financial intermediation services (1) In the previous years, net interest accrued of each industry is treated as intermediate input (2) In census year, the output of financial intermediation services is allocated across industries and final users

29. 29 2. Adjustment of the treatment of taxes on imported goods (1) Taxes on imported goods are added to the value-added of Wholesale and Retail Trade industry (2) The taxes on imported goods are to be concluded in the GDP by production approach and by income approach as a whole

30. 30 3. Adjustment of the Treatment of Computer Software (1) Whether the acquisition of computer software is treated as fixed capital formation or as intermediate input is not clearly defined in current practice (2) In the year of economic census, the treatment will change to be consistent with that recommended in the 1993 SNA according to the census data as much as possible

31. 31 4. Adjustment of the depreciation ratio used in the imputed calculation of households owner-occupied dwellings services (1) In current practice, the depreciation ratio used in the imputed calculation of owner-occupied dwellings services of rural households is 2%, while for urban households is 4% (2) These two ratios will be adjusted to be consistent in the year of economic census