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    Accounting Methods of China’s Annual

    Expenditure-Based GDP

    WU You

    Department of National Accounts, NBS

    Department of National Accounts of National Bureau of Statistics developed expenditure-based GDP estimates on trial basis in 1989, and added expenditure-based GDP estimates to annual report in January 1990 for the first time. “Program of

    Explanatory Notes on Gross Domestic Product Indicators and Accounting Methods”

    was issued in all regions in October 1993. And annual expenditure-based GDP estimates system was established formally, which was carried out nationally and regionally. In 1995, National Bureau of Statistics firstly published national expenditure-based GDP figures for 1978-1994 and figures of 30 provinces, municipalities and autonomous region’s figures for 1993 in "China Statistical

    Yearbook”. According to 1993 SNA, Department of National Accounts of National Bureau of Statistics has improved and revised the expenditure-based GDP accounting system for many times since 2000. At present, the state and regions have formally established the annual expenditure-based GDP accounting system, and are studying and establishing discrete expenditure-based GDP accounting system. I. The frame and classification of expenditure-based GDP accounting Annual GDP by expenditure approach consists of three parts: final consumption expenditure, gross capital formation and net export of goods and services. The frame for computation is:

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    GDP

    Final Gross Capital Net Export of

    Consumption Formation Goods and

    Expenditure Services Household Government Gross Fixed Changes in Export of Import of Consumption Consumption Capital Inventories Goods and Goods and Expenditure Expenditure Formation Services Services The classification of expenditure-based GDP accounting:

    First-class Second-class Third-class classification classification classification

    Household Consumption

    Expenditure(Rural and Urban Food

    Household)

    Clothing

    Residence

     Household Appliances and Services

    Health Care and Medical Services

    Transport and Telecommunications

    Education, Culture and Recreation and Services

    Financial Service

    Insurance Service

    Owner-occupied dwelling Service

    Consumption Expenditure in kind

    Other Goods and Services

    Government Consumption Current Operating Expenditure Expenditure

    Depreciation of Fixed Assets

    Gross Fixed Capital Formation Residential Construction

    Non-Residential Construction

    Machinery and Equipment

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    Land reclamation expenditures

    Mineral exploration costs

    Software

    Others

II. Household Consumption Expenditure

    Household Consumption Expenditure can be divided into Rural Household Expenditure and Urban Household Expenditure. Household Consumption Expenditure includes (a) expenditure on goods and services directly with money, (b) expenditure on goods and services in the form of payment and transfer in kind, (c) goods produced and consumed by households themselves, (d) expenditure on financial intermediate services, (e) expenditure on insurance services, (f) expenditure on owner-occupied dwelling services.

    According to the characteristics of the consumption of urban and rural households in China, rural and urban household consumption expenditure can be divided into 11 categories:

    Food

    Clothing

    Residence

    Household Appliances and Services

    Health Care and Medical Services

    Transport and Telecommunications

    Education, Culture and Recreation and Services

    Financial Services

    Insurance Services

    owner-occupied dwelling services

    Other Goods and Services

1. Calculation at current price

    Household Consumption Expenditure is mainly based on the data from sample survey

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    of rural and urban households carried out by NBS and other statistics. It is calculated by categories above.

    (1) Expenditure on Food, Clothing, Residence, Household Appliances and Services, Health Care and Medical Services, Transport and Telecommunications, Education, Culture and Recreation and Services, expenditure in kind, Others = Consumption

    expenditure Per Capita (relevant category in Rural and urban household survey) × annual average number of residents

    And,

    Annual average number of residents = (the number of residents at the beginning of the year+ the number of residents at the end of the year) ?2

    (2) Expenditure on financial Service includes financial intermediate services indirectly measured (FISIM) and explicit financial services consumed by rural and urban household.

     And,

    FISIM consumed by household

    = (annual average of savings deposits + annual average of personal housing accumulation fund deposits + annual average of consumption loan) * (interest of loans interest rate of deposits)/2

    Explicit financial services consumed by households are calculated basing on related financial data of financial institutions.

    (3) Household consumption expenditure on insurance services refers to the expenditure resulted from the fact that residents involve in the insurance service provided by insurance institutions.

    Household consumption expenditure on insurance services = Gross output of Insurance * insurance claim of households/ total insurance claim

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     (4) The value of imputed consumption expenditure of household owner-occupied dwelling services is equal to the imputed rent. When the imputed rent is inavailable, the cost of housing is used. The formula is:

    The imputed consumption expenditure of the urban households owner-occupied housing services =Repair and maintenance cost of urban households owner-occupied dwelling+ management fees of urban households owner-occupied dwelling+ imputed depreciation of households owner-occupied dwelling

    And, imputed depreciation rate of household owner-occupied dwellings is 2% for urban area and 3% for rural area.

    (5) Consumption expenditure in kind is calculated by total non-cash income per capita of households and average number of households.

    (6) Consumption expenditure on other goods and services means the expenditure except above, including expenditure on jewelry, hair beauty appliances, cosmetics, hotel accommodation, funeral fee, etc, which is calculated by per capita expenditure of miscellaneous goods and services of households and average number of households.

    2 .Calculation method at constant price

    Household consumption expenditure at constant price is calculated by rural and urban residents, and deflated by relevant price indices respectively. Categories of household consumption expenditure and related price index are as follows:

    Household consumption categories Price index categories

    food General food price index

    clothing Clothing price index

    residence Residence price index

    Household facilities, articles and Household facilities, articles and services services price index

    Health care Health care price index

    Transportation and communication Transportation and communication price index

    Recreation, education and culture Recreation, education and culture articles articles price index

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    weighted average of Consumer price

    Financial and Insurance services index and fixed assets investment

    price index

    Owner-occupied dwelling service Renting price index

    Other goods and services Personal services price index

III. Government consumption expenditure

    Government Sectors includes administrative and non-profit institutional units of various types. There are: (1) Service Activities for Agriculture, Forestry, Animal Husbandry and Fishing; (2) Scientific Research, Technical Service and Geologic; (3) Management of Water Conservancy, Environment and Public Facilities; (4) Nursery and Bury Service of Services to Households and Other Services; (5) Education; (6) Health, Social Security and Social Welfare; (7) Culture, Sports; (8) Public Management and Social Organization. The main data sources of the calculation of government consumption expenditure are Defense White Paper and current operating expenditure from Ministry of Finance.

    1. Calculation at current price

    Government Consumption Expenditure= Current Operating Expenditures

    Operating revenue+ Depreciation of Fixed Assets

    And,

    Current Operating Expenditures= (Expenditures on Wages and Welfare+ Expenditures on Goods and Services+ Expenditures on National Defence) + (Subsidies on Individual and Families- Pension Costs- Living Allowance- Relief Costs- School Aid Costs- Production Subsidies)

    Operating revenue of Government Sectors= Operating revenue of the national budget units

    Depreciation of Fixed Assets= Original value of fixed assets* Depreciation rate

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(4%)

    2. Calculation at constant price

    Government Consumption Expenditure at constant prices is deflated in two parts: One is Depreciation of Fixed Assets and the other is the margin, equal to Government Consumption Expenditure minus Depreciation of Fixed Assets. The former is deflated by Producers’ Prices of Industrial Products; the latter is deflated by Consumer Price

    Index.

IV. Gross Fixed Capital Formation

    According to the international standard and data source, Gross Fixed Capital Formation consists of 7 parts: Residential Construction, Non-Residential Construction, Machinery and Equipment, the value of land improvement, the prospecting of minerals, computer software, others.

    That is below:

    Gross Fixed Capital Formation = Residential Construction +Non-Residential Construction+ Machinery and Equipment+ the value of land improved+ the prospecting of minerals+ computer software+ others.

    Total investment in fixed assets is the main basic data and source for accounting Gross Fixed Capital Formation. Gross Fixed Capital Formation covers urban area investment, real estate development investment, rural fixed assets investment projects which is over 500,000 Yuan; Statistical frequency is monthly and annual. Data are

    collected by the system of reporting form with complete enumeration. 1. Calculation at current price

    1 Residential Construction

    The residence here refers to the building only for occupancy, for example, villa, apartment and dormitory. The formula is below.

    Residential Construction=residential investment + value-added of Residential sales - corresponding fees in land requisition, purchase and resettlement compensation. Residential investment refers to the investment of the buildings only for occupancy,

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for example, villa, apartment, dormitory, etc.

    Value-added of Residential sales refers to the difference in the accounting period between the sales value of residence and corresponding Investment completed, i.e. cost of project before buildings being sold. The formula is below.

    Value-added of Residential sales = actual sale of residential buildings (floor

    space of residential buildings ×cost of residential buildings completed) - investment in land development - corresponding fee in land requisition, purchase and resettlement compensation.

    Investment in Residential Land development refers to upfront project investment of real estate companies. That is investment in road, water supply, power supply, land leveling.

    The fee in land requisition, purchase and resettlement compensation refers to all kinds of land compensation fees and allowance for arrangement, that land developers contribute to government in the situation of both remise and transfer of the using right of State-owned land. These costs don’t increase the Gross Capital Formation, so it should be deducted from Investment in fixed assets completed.

    2 Non-residential construction

    Non-residential construction refers to the building not for residence, for example, office, commercial business buildings, factory and storeroom, public infrastructure. The formula is below.

    Non-residential construction

    = Construction and installation of Total Investment in Fixed Assets in the Whole Country-investment in residential buildings

    -cost of purchasing old buildings

    -corresponding fee in land requisition, purchase and resettlement compensation + valueadded of non-residential construction sales

    Costs of purchasing old buildings: it is similar to the costs of purchasing old equipment, Costs of purchasing old buildings are included in Total Investment in Fixed Assets, but don’t increase the fixed assets, so it should be deducted from Investment in fixed assets completed.

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    Corresponding fee in land requisition, purchase and resettlement compensation in non-residential construction: It is similar to residence. It is included in completed investment in fixed assets, but it doesnt increase the total fixed capital formation, so

    it should be deducted from fixed capital completed Investment.

    Value-added of non-residential construction sales refers to the difference within the accounting period between the sales value of non-residential construction and corresponding completed Investment, i.e. cost of the project before sold. The formula is below.

    Non-residential construction sales added value= commercial residential building actual sales revenue- residence actual sales revenue- (commercial residential building saleable area- residence saleable area) ×residential buildings cost- commercial land development investment- commercial land purchase fee.

    3 Machine and equipment

    Machine and equipment refers to the equipment, tools and machines bought or made by enterprises and administrative institutions and reach the standards of fixed assets. The computation formula is below.

    Machine and equipment = machine and equipment investment + fixed assets investment below five hundred thousand Yuan- cost on purchasing old equipments. Machine and equipment investment refers to the costs of equipment, tools and machines bought or made by enterprises and administrative institutions and reach the standards of fixed assets.

    Fixed assets investments below 500 thousand Yuan: Since they are not included in total investment of fixed assets, and most of them are used to buy machine and equipment, these are estimated as 0.2‰ of total investment in fixed assets.

    Cost on purchasing old equipments is included in total investment in fixed assets, but the cost doesnt increase the fixed assets, so the cost should be deducted from the total investment in fixed assets.

    4Land improvement costs

    Land improvement costs refer to the investment in projects examined and arranged by all levels of administrative departments of land resources in order to increase the

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    amount of land, improve the quality of land or increase land productivity. They are considered as a part of gross fixed capital formation.

    5Mineral exploration costs

    Mineral exploration costs refer to the capital invested on underground mineral resource exploration by all sections and units of the whole society. They are part of intangible fixed asset.

    6Computer software

    Computer software refers to the income of enterprises from developing, producing and selling software. They also are part of Intangible fixed asset.

2. Calculate method at constant price

    Total fixed capital formation at constant price is computed by deflation. Items of total fixed capital formation at current price are deflated by corresponding price index. Residence, deflated by construction and installation price index of fixed assets investment price index.

    Machine and equipment, deflated by equipment and instruments purchasing price index of fixed assets investment price index.

    Non-residential construction, deflated by construction and installation price index of fixed assets investment price index.

    Land improvement cost, deflated by fixed assets investment price index. Mineral exploration cost, deflated by fixed assets investment price index. Computer software, deflated by computer software price index of retail price index.

V. Increase in inventories

    The inventory includes the raw materials, fuels and reserve materials purchased by the production units, as well as finished products, semi-finished products, work-in-progress, etc. Increase in inventory refers to the market value of the change in physical inventory during the accounting period, i.e. the difference of the inventory value between the beginning and the end of the period minus the holding gains or losses resulted from price fluctuation.

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