Chapter2 Sources and Estimates for Historical GDP




2.1 Basic methodology for estimating historical GDP

First, in order to estimate GDP based on NI data, it is necessary to clarify differences between GDP and NI. There are two main differences. One regards production scope, which for NI only covered material goods production. The second difference regards GDP which included, in addition to material goods production, non-material service activities. The concrete differences are: (1) GDP includes the newly created values of non-material product sectors, which are excluded from production activities for NI; (2) NI includes payments to non-material service sectors which did not belong to production activities and are not included in the intermediate input but are included in the net production value while GDP does not include payments to the non-material service sectors which are treated as intermediate consumption but not value added because of the expansion of the scope of production. On the other hand, the difference between "gross value" and "net value" means that GDP is calculated by "gross" concept and that it includes depreciation of fixed assets, while NI is calculated by "net" concept and does not include depreciation of fixed assets. As mentioned above, the two distinctions mean that estimating the historical GDP data requires adjusting and supplementing NI data. The present practice for estimating past GDP is, first, to collect data on intermediate payments by the material product sector to non-material services and on depreciation of fixed assets, which must be adjusted and supplemented, and converting net production value of the material production sector to value added. Second, data on the non-material product sector is collected and used to calculate value added. The total value added of the two sectors indicates GDP in China. The general scheme for our estimation of historical GDP in China is shown by Table 1 The simplest formula for estimation is as follows:


      At=ƒ°i(Xit-Yit+Zit)+Bt(i=1,2,....,5;t=1952,1953,...,1978).




Here, i represents five material sectors. i = 1 represents agriculture, i = 2 is industry (mining and manufacturing), i = 3 is construction, i = 4 is transportation, and i = 5 is commerce. At is value added at year t. Xit is the net production value of the "i" material product sector at year t. Yit represents payments to the non-material services by "i" material product sector for year t. Zit is depreciation for the "i" material product sector for year t. Bt represents value added for the non-material sector for year t.

Namely, the historical GDP is derived from earlier compiled official NI values by the following adjustments:


      GDP = NI (NMP)

      + the total value of depreciation of fixed assets in the material sphere

      - the non-material inputs used for material production

      + the gross value added of non-material services.




The above formula to derive GDP or GNP from NI (NMP) data was employed by many countries in transition (see The World Bank, Historically Planned Economies: A Guide to the Data, Washington, DC., 1992). Figure 1 summarizes relations of administrative data sources, original data tables, original MPS figures and estimated results. For example, national income data are obtained from various issues of China Statistical Yearbook by the department of National Accounts Statistics of the SSB and unpublished tables of production costs and sale costs by firms' accounts reports. Based on these data, net value of production, payments to non-material sectors by material sectors and "others" are estimated.

On the other hand,Table 2 displays the correspondence between gross domestic expenditure (GDE) and national income (NI) used with supplementary parts needed to derive GDE from NI used. Table 2 will be used in Chapter 3 of this report.




2.2 Estimating value added for the material production sector

According to the present approach, value added for the material production sector is estimated by deducting payments to the non-material service sector by material production sector from net production value, i.e., passenger transport service, hotel service, banking and insurance service payments and so on, and by adding the total value of depreciation of fixed assets of the material production sector.


    2.1.1 Payments to non-material services by material production sector(Yit)

    From 1952 to 1978, the total net product value for the five main material production sectors was calculated by integrating the production approach with the income approach. For most cases, net product values were calculated using the income approach for the mining and manufacturing (industry), construction, transportation, communications, and commerce sectors, while the production approach was used for agriculture. The net product value derived from the income approach included wages, profits, taxes, and others. All payments by the material product sector to non-material services were included in the category "others."In fact, "others" included three items: (1) payments by the material product sector to non-material services; (2) payments by the material sector to workers, such as meal price subsidies, price support subsidies for transportation, and home leave allowances; (3) direct and indirect payments by the material product sector to the government, including charges levied on education. For calculating payments by the material product sector to non-material services included in the category "others," two methods were adopted. One was to collect data directly on payments for appropriate services, such as passenger transport services, hotel services, banking and insurance services and so on. Another was to collect data on payments to workers and the government, and to deduct these two parts from the category "others" in order to obtain the payments by material production sector to non-material services. These methods need to make use of financial materials for appropriate sectors, for example, product expenditure tables, sales expenditures tables, and so on.

    For the earlier years, for the above mentioned four sectors, the methods of calculating the net product values were not always well coordinated. In most years, the income approach was adopted, while in some other years the production approach was adopted. Moreover, some items were adjusted for calculating NI. For example, road maintenance fees were sometimes calculated as net product value, and sometimes as intermediate consumption. So when calculating different payments to non-material services by material production sectors, the realistic situation must be considered for different sectors for appropriate years. Payments by the agriculture sector to non-material services can be estimated using data on net product value of the agriculture sector which is calculated by the production approach.


    2.2.2 Depreciation of fixed assets of the material production sector (Zit)

    Depreciation of fixed assets for every fiscal year for five material sectors, namely industry, agriculture, construction, transportation, and commerce can be calculated, in the case of state enterprises, from financial final accounts by the financial sector. There is relatively detailed information on depreciation for state enterprises. However, for various kinds of enterprises other than state enterprises, there is a shortage of data to directly calculate depreciation. The depreciation must therefore be estimated using the unified rate of depreciation of fixed assets and the original book value of fixed assets, and the withdrawal rate of major repairs and maintenance.


    2.2.3 Minor adjustments

    When calculating value added, it is impossible to immediately incorporate some basic data gathered from NI into either value added or intermediate input. Some adjustments for certain minor differences between SNA and MPS should be made. For example, insurance premiums, which are included in net product value, must be partially included in value added because a part of payments to services is incorporated into intermediate inputs.






2.3 Estimation of value added of the non-material services sector

The non-material production sector can be grouped into the following two categories by the nature of its income and expenditure. One is corporations and quasi-corporations such as public communication enterprises, banking and insurance, etc. The other is administrative units and non-profit institutions such as public administration and the army, scientific research, culture, education, health care and social welfare as well as public utilities such as garden management and road and environment management of which one part is financed fully by budget allocation, one part is financed partly by budget allocation, and the remaining part is self-financed.

As a rule, the output of most corporations and quasi-corporations equals their business income, but some of them may have non-business income in addition to their business income. In the latter case, if the non-business income constitutes a small proportion of the total income and can not be distinguished easily from the business income, we do not subtract it from the total output. The value added of corporations and quasi-corporations includes their employee wages, welfare, profits, taxes, depreciation on fixed assets, etc. For those units financed fully or partly by budget allocation, their output is equivalent to their current business expenditures plus depreciation on fixed assets; their value added includes only their employee wages, bonuses, welfare, other income, taxes and depreciation on the fixed assets. For those units which finance themselves, their output is in principle valued on the basis of their business income or current business expenditures plus depreciation on the fixed assets. Among self-financing units, some are capable of making profits, while some are not; some need to pay taxes, while some need not; some need to withdraw their depreciation on fixed assets in conformity with the provisions concerned, while some need not. The components of their output estimated by the income approach include profits, taxes and depreciation on fixed assets, so long as they exist. For those units which have withdrawn their depreciation on the fixed assets according to the provisions concerned, their depreciation should be introduced into their value added; while for those units which have not withdrawn their depreciation on fixed assets, their depreciation should be introduced into their value added after it has been estimated on the basis of the original value of the fixed assets. In practice, for the sake of convenience, the units which finance themselves will hereafter be treated in the same way as those financed fully or partly.

Before 1978, many non-material services in China such as real estate (mainly referring to the management of the urban real estate), banking and insurance, science, education, culture, health care service, broadcast, film, television service, the Party organization and public administration, social groups and so on had kept their own financial records on income and expenditure, but we still can not get the aggregated data at the national level. Therefore, how to estimate their value added is a big problem facing us. In order to estimate the value added of non-material services, the key lies in the data sources. The data used here for compiling estimates comes mainly from the labor wage annual reviews compiled by the Population and Employment Department of SSB, statistical data on national income, data on budget clearing, data on taxes, financial data of the banking system, financial data on other management departments and related business data. For certain sub-sectors of the non-material production sector, those aforementioned data sometimes are not enough to estimate their value added and its structure as a whole. In this case, we need to use some related indicators to infer and estimate it.

In accordance with the historical data collected, the income approach is recommended to estimate the value added of non-material services. The basic formula for estimating it is as follows (see Table 1) :


      B t = depreciation of the fixed assets of the non-material production sector (B1kt)

      + net revenue from passenger traffic and posts and telecommunications (B2t)

      + employee income in the non-material production sector (B3kt)

      + welfare funds (B4kt)

      + profits (B5kt)

      + taxes (B6kt)

      + others (B7kt).




    2.3.1 Depreciation of fixed assets (B1kt)

    According to the accounting provisions in the pre-reform period, the fixed assets of public administration and institutions financed fully or partly by budgetary allocations were not depreciated. The depreciation of the fixed assets of those aforementioned units are estimated by the depreciation rate of 2% multiplied by the original book value of their fixed assets. It should be noted that the fixed assets shown in their accounting books at that time only included ordinary equipment whose value exceeded 20 yuan and whose duration time was more than one year, and specialized equipment whose value exceeded 100 yuan and whose duration time was more than one year, excluding dwellings and structures. In order to estimate their value added, as much data as possible on dwellings and structures must be collected.

    The depreciation on fixed assets and the capital restructuring funds of enterprise-like institutions can be obtained from their accounting statements. For example, the depreciation on the fixed assets and capital restructuring funds for state-owned enterprises can be obtained directly from the accounting statements of the finance departments; for collectively-owned enterprises, depreciation must be estimated on the basis of the original values of their fixed assets, the depreciation rate, and the capital restructuring fund rate.

    The depreciation on the fixed assets of the non-material production sector also includes housing depreciation. The rents of most dwellings in China from 1952 to 1978 were so low that they could not cover maintenance and repair expenditures. At that time, resident dwellings in China included dwellings managed by the urban real estate management departments, enterprises, public administration and non-profit institutions as well as residents' private housing. For those dwellings managed by the urban real estate management departments, the rents paid by residents may be treated as depreciation in the value added; for rent-free owner-occupied residential dwellings in the city and countryside, depreciation should be imputed as part of the value added. The imputed depreciation of owner-occupied residential dwellings may be estimated on the basis of their original values and length of duration period, from which their original values could be estimated from their floor areas in square meters and the prices of other types of housing.

    Depreciation on employee housing managed by enterprises, public administrations and non-profit institutions were neglected because of the difficulty in disaggregating the data.


    2.3.2 Net income from passenger transportation and communications (B2t)

    The national passenger traffic system includes railways, highways, waterways and civil aviation traffic. The net revenue from passenger traffic is defined as the revenue from passenger traffic minus expenditures on passenger traffic plus employee wages and welfare funds. The revenues and expenditures of passenger traffic can be derived by the turnover volume of passenger traffic multiplied by transportation prices (10,000 yuan/100,000,000 person-km) and average transportation costs (10,000 yuan/100,000,000 person-km), respectively. On the basis of the financial data collected from railways, highways, waterways, civil aviation, and communication services, the following basic formulas are used:


        Net revenues of passenger traffic by waterways

        = gross revenues of passenger traffic

        - expenditures on passenger traffic

        + employee wages + employee welfare funds

        Gross revenues of passenger traffic

        = turnover volume of passenger traffic (100,000,000 person-km)

        x transportation price (10,000 yuan/100,000,000 person-km)

        Expenditure on passenger traffic

        = turnover volume of passenger traffic (100,000,000 person-km)

        x average transportation cost (10,000 yuan/100,000,000 person-km)

        Net revenues of passenger traffic by railway

        = gross revenues of passenger traffic

        - expenditure on passenger traffic

        + employee wages + employee welfare funds

        Net revenues of passenger traffic by highway

        = gross revenues of passenger traffic

        - expenditure of passenger traffic

        + employee wages + employee welfare funds




    The net revenues from passenger traffic and communication services is equivalent to the sum of revenues from passenger traffic by railways, highways, waterways, civil aviation, and from the communications services.


    2.3.3 Wages in the non-material production sector (B3kt)

    Wages of the non-material production sector includes wages of employees in state-owned enterprises, wages of employees of collectively-owned enterprises in cities and towns, individual worker incomes in cities and towns, incomes of employees of collectively-owned enterprises and individual worker incomes in rural areas. As shown by Table 3, the former two parts can be obtained directly from total employee wages of state-owned and collectively-owned enterprises in Labor and Wage Statistics in China (1949-1985). Since total wages at that time included the employee wages raised from welfare funds and profits retained by enterprises, those should be subtracted from total wages in order to avoid duplication. As can be seen from Tables 3 andTables 4, the individual laborer income in cities and towns may be estimated by the number of individual laborers times the average wages of collectives' employees in cities and towns. The incomes of collectives' employees and individual workers in rural areas are estimated by the number of collectives' employees and individual workers times their average incomes, which can be calculated as a percentage of the average wage of collectives' employees in cities and towns.


    2.3.4 Welfare funds (or funds for public benefits) (B4kt)

    The welfare funds for employees of state enterprises as a part of the cost is collected at a percentage (as a rule 11%) of total wages in compliance with the provisions stipulated by the state, and excludes the employee welfare funds collected from profits retained by enterprises. The welfare funds for employees of state-owned non-profit institutions is collected in compliance with the standards promulgated by the state. The welfare funds of employees of other enterprises are estimated from the ratio of the welfare funds of state-owned enterprise employees in their total wages. The funds for public benefits refer to funds collected as a percentage of the collectives' incomes in rural areas and used for public benefits.


    2.3.5 Profits (or income withdrawal) (B5kt)

    The profits of corporations and quasi-corporations refer to their operating profits (or business profits). Public administrations and non-profit institutions do not make any profit. The profits of their auxiliary enterprises such as shops, hotels, cinemas and so on, should be treated as the profits of the industries they belong to. The incomes earned by public administrations and non-profit institutions engaged in activities related to their principal areas, such as consulting, science and research, patent transfer and so on, are not treated as profits.

    As shown by Table 5, the profits of state-owned enterprises may be obtained directly from National Finance and Trade Statistics (1948-1978), while the profits of other enterprises and non-profit institutions are estimated by their industrial and commercial taxes or income taxes combined with the ratio between profits and taxes of state-owned enterprises. The income withdrawals mainly refer to the funds collected as a percentage of the collective income in rural areas.


    2.3.6 Taxes (B6kt)

    The category "taxes" covers taxes paid to the government, including business taxes, taxes on vehicle licenses, urban real estate taxes, taxes on animal barter, taxes on animal slaughtering, taxes on bazaar transactions, industrial and commercial taxes, custom duties, taxes for city maintenance and construction, etc. It does not include income taxes, regulation taxes and bonus taxes paid from the profits retained by enterprises in order to avoid overlapping with enterprise profits.

    The taxes of state-owned enterprises may be obtained directly from National Finance and Trade Statistics (1948-1978), while the taxes of other ownership and non-profit institutions also can be found in the entry of industrial and commercial taxes of the same data (see Table 5).


    2.3.7 Others (B7kt)

    Others refers to the residuals of value added after picking out wages, welfare funds, profits, taxes and depreciation on the fixed assets, which include conference and travel expenses for business trips and so on paid directly to workers. The benefits of the retired workers as the delayed payment of workers' compensation should be included in the value added. For corporations and quasi-corporations, retirement benefits may be omitted because they have already been included in their sale (or business) profits. However, for public administrations and non-profit institutions, they should be added to value added in different forms. The benefits of the retired are estimated on the basis of the data on final accounting of finance revenues and expenditures and the input-output data in 1981 and 1983.


    2.3.8 Coordination of industry classification

    In the history of China's statistics and accounting, industry classifications were changed in various ways different from those of GDP accounting. It is necessary to adjust the statistical scopes of the primary data collected in accordance with the classification of GDP to account for calculating the value added of each subsector of the non-material production sector.






2.4 Some source and intermediate data

Here, we would like to introduce some source and intermediate data employed in the present estimation of historical GDP in China. Tables 6andTable 7 show respectively total wages and average wages by sector in the non-material production sector (see also Table 5). Table 8 shows numbers of social workers in the non-material production sector.

China's historical data on depreciation of fixed assets by sector at current prices had not been published. Table 9 for the first time in the history makes public the complete official time series of depreciation data which are essential in the present estimation of GDP. Table 10shows the estimates of payments to non-material services by material production sectors at current prices for selected years. In 1953 the share of commerce in the payments was rather high while in 1964 and 1969 industry (mining and manufacturing) shows a share near that of commerce.

In estimating historical GDP we also estimated FISIM (financial intermediation services indirectly measured) for 1952-1995. Table 11 shows the share of FISIM in GDP for selected years. As can be seen, in the 1950s and 1960s the share showed a rather small value of around 1%. In 1969 it showed a rapid increase while in 1977 and 1983 it showed a slight decrease. For 1991-1995 it shows values in the range between 3.5% and 5.1%. It should be noted that the data on FISIM were first made public in this report.