By the Blouin News Business staff

China falls in line with revising its GDP upwards

by in Asia-Pacific.

A worker assembles a generator at a factory in Hefei.

Photo Credit: Reuters/China Daily

China’s national statisticians plan to change the way they calculate the nation’s gross domestic product. They say this is to take better account of the (significant) rise in valuations of hard assets such as land and real estate when it comes to measuring the output of China’s economy and — more importantly, perhaps — to include intangible assets such as patents, creative works and business processes that are increasingly part of the 21st-century economy.

In particular they will be making a change to their accounting practices that has already been made or is to be made shortly in all the developed economies: counting spending on research and development as an investment, not as an expense. Doing so will provide a one-off boost to the size of China’s GDP.

How big a boost will remain unclear until more details around the change filter out. A handy yardstick might be China’s 2012 R&D spending, which was equivalent to 2% of its gross domestic product. The new accounting rules will not create a one-to-one relationship here, but the change will be material. When the U.S. made this same accounting change in July, it added 2.7% to the size of America’s GDP. (Serious money: this is the economic equivalent of the U.S.  absorbing Belgium).

Quarterly and annual GDP growth numbers won’t be much affected. The historical series will get restated using the new methodology. In the U.S.’s case, the annual average growth rate going back half a century was revised up by a seven-hundredths of one percentage point.

A U.N. working group agreed on the new revision to the international standard for GDP accounting that China is now embracing in 2008. The intention was to make a measure devised in the manufacturing-centric 1930s more suitable for capturing the output of goods and services of today’s knowledge-based economies. It is remarkable, today, to think that Franklin Roosevelt tackled the Great Depression without having any comprehensive measure of the U.S. national income and output, the absence of which GDP was devised to redress. It was only after World War 2 that GDP started to be used as “the one number” that indicated a country’s standard of living, and its quarterly change as a measure of whether an economy was doing well or not.

There are persistent doubts about the accuracy of China’s GDP figures, mostly because the data collection is so technically and politically challenging in a country of China’s size and state of development. About the only certainty is that in any year the sum of provincial GDPs will be larger than national GDP.

China’s national statisticians have started pilot projects using the new methodology. A national GDP figure based on it won’t be calculated before the end of next year at the earliest.