China Plans To Recalculate Its GDP Number Upwards

Most developed countries have done it, and now so will China — boost GDP growth through an accounting change. The National Statistics Bureau says wants to use market values for assets such as land and property values when calculating gross domestic product. It also says it wants to bring its calculations more in line with international practice. That most likely means that research and development and other intangible assets will no longer be regarded as a mere expense, but will be transmogrified into an investment.

The instant effect will be a one-off jump in the GDP number. It is hard to know by how much without knowing more of the accounting detail but it is likely to be material. R&D spending in China reached 1 trillion yuan ($64 billion) in 2012, equivalent to 2% of its gross domestic product, according to state media.

It is, though, a change to be welcomed, and one a U.N. working group to set an international standard for GDP accounting agreed in 2008. The U.S., Canada, Australia and U.S have already made or are making the change on intangible assets. Europe will, too, next year.

GDP is a creature of the manufacturing economy, a measure of an economy’s hard output of goods and services. It is less good at capturing the intangible economy that is coming to represent more and more of the value created though innovation and creativity in the economies of the 21st century. Intangibles include not just R&D but also patents, copyrights, trademarks, designs, cultural creations, and business processes.

When the U.S. made the change in the middle of this year, which in its case also included counting creative works such as films and books as long-lived assets, it provided a one-off jump in GDP of 2.7% (in raw data terms, the equivalent to adding an economy the size of Belgium). When new definitions are introduced, past estimates of GDP get re-stated so percentage changes in GDP are only slightly affected. But they do capture something of the changing nature of an economy. Restating the U.S.’s historical GDP numbers using the new definitions raised annual economic growth between 1959 and 2007 to 3.39% from 3.32%. In more recent periods the difference has been higher, an 0.17 percentage points difference in 1995-2001 and an 0.12 percentage points difference from 2002 to 2007.

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One response to “China Plans To Recalculate Its GDP Number Upwards

  1. Pingback: China Business Briefs 19/11/13 | China Stock Watch

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