The SSB's project of estimating China's GDE (gross domestic expenditure) at constant prices formally began in 1989. Estimates of GDE at both constant prices and current prices were compiled simultaneously by the state and provinces. Estimates of GDE, or GDP by the expenditure approach, were originally based on consumption and accumulation statistics in MPS. By expanding these estimates to consumption expenditure and gross capital formation in SNA, and to the net export of goods and services, we obtain the gross domestic product. With the development and improvement of China's system of national accounts, the approach was improved and perfected step by step. According to the new business accounting system and new international statistical standards, the SSB significantly modified the methods for compiling detailed estimates in October 1993. By now, estimates have been compiled using the new methods for more than two years. At present, SSB is making further modifications to the method of compiling detailed estimates of GDE at both current prices and constant prices in order to coordinate the process of transition to the new system of national accounts.
The year 1980 serves as the accounting base year for constant prices through 1989. With the change of the Chinese statistical constant price base year, SSB regards 1990 as the base year for the period beginning in 1990.
GDE, or GDP estimated by the expenditure approach is equal to total consumption plus total investment plus net exports. Total consumption refers to the total consumption expenditure on all of the goods and services of the resident units in the accounting period. It is consistent with the final consumption expenditures in SNA. Total investment refers to the sum of newly increased fixed assets and changes in inventories of the resident units in the accounting period. It corresponds to gross fixed capital formation in SNA.
The classification of expenditure components of GDE is as follows. Total consumption is divided into household consumption, including farm household and non-farm household consumption, and public consumption. Household consumption is subdivided into commodity consumption, own-account consumption, cultural and living services consumption, housing, water, electricity and gas consumption, public health services, compensation in kind and collective welfare consumption. Total investment consists of gross fixed assets formation and changes in inventories. Gross fixed assets formation includes construction and installation projects, purchases of equipment and instruments, and other construction. Changes in inventories in non-agricultural sectors are subdivided into production goods, consumption goods, and purchases of farm and sideline products. Changes in inventories of agricultural goods are divided by categories of goods such as grain, pigs, goats, poultry, livestock and other domestic animals. On the other hand, according to the type of investments, gross fixed assets formation and changes in inventories can be classified by ownership and by industries as well.
First, total consumption, total investment and net export at constant prices are estimated separately. Then they are summed up to obtain GDE at constant prices. There are two methods of estimating GDE at constant prices. The first method is to deflate the value at current prices with a price index, while the second method is to multiply unit price in the base period by corresponding quantities in the accounting period. In China, GDE is usually calculated using the first method.
5.3.1 Total consumption
a. Household consumption
Household consumption refers to the total consumption expenditures on goods and services of households in a given accounting period, including non-farm consumption and farm consumption.
1) Non-farm consumption
Non-farm consumption includes commodity consumption, cultural and living services consumption, housing, water, electricity and gas consumption, public health services consumption, compensation in kind and collective welfare consumed by non-farm households, private housing services consumption and banking services consumption.
(1) Commodity consumption refers to all kinds of commodities purchased by non-farm households and used for individual consumption at home and abroad during the accounting period. According to the different sources of purchase, commodity consumption at constant prices is calculated by two parts. One part is farm and sideline products directly bought by non-farm households from farm households, and deflated with the agriculture market transaction price index; the other is commodities bought by non-farm households from sellers other than farm households, and deflated by the urban consumer goods price index. By summing up the above two parts at constant prices, we obtain commodity consumption at constant prices.
(2) Cultural and living services consumption refers to all kinds of expenditures on cultural and living services of non-farm households in the accounting period. The value at constant prices can be obtained through the deflation of the value at current prices with the urban service items price index.
(3) Housing, water, electric and gas consumption refers to expenditures of non-farm households on rent, housing, and water, electric and gas for consumer consumption. The value at constant prices is derived by deflating the value at current prices with the urban housing price index.
(4) Public health services consumption refers to the medicine and medical services paid for by government and by enterprises for their employees. The method for calculating the value at constant prices is to deflate the value at current prices with a public health services price index, which is estimated on the basis of medical treatment and the health care price sub-index and the household service sub-index from the urban consumer price index.
Here it is necessary to explain the method for determining the price index. The price of public health services consumption is affected not only by the price of medical goods, but also by the price of medical services. Because there is no suitable price index at present, we have to determine the public health services consumption price index using a simple arithmetic average method according to the medical treatment and health care price sub-index showing price changes of medical goods and the household service sub-index of the urban consumer price index showing changes in medical service prices.
(5) Private (owner-occupied) housing service consumption refers to urban households' consumption of owner-occupied housing services. Its value is usually represented by a substitute of the imputed depreciation of private housing. The method for calculating the value at constant prices is to divide the imputed depreciation into two parts, i.e., the depreciation withdrawn in the previous year and the depreciation of newly increased dwellings that should be withdrawn in the current year. The depreciation at constant prices in the last year plus the depreciation withdrawn in the current year that is directly deflated with the urban individual fixed assets investment price index is equal to the depreciation of the non-farm private housing at constant prices in the accounting year.
(6) Compensation in kind consumption refers to the consumption of goods and services received directly from working units free of charge or at below market prices. The value at constant prices is derived by deflating the value at current prices with the urban consumer goods' price index.
(7) The collective welfare consumed by non-farm households refers to the cost of collective welfare facilities and subsidies on collective welfare paid by all economic units on behalf of their employees. The collective welfare funded by work units enjoyed on behalf of households is classified under cultural entertainment and living service items, and the value at constant prices is derived through deflation with the service sub-index of the urban consumer service price index.
(8) Banking and insurance service consumption refers to households consumption of banking and insurance services such as savings accounts and insurance policies. The value at constant prices is calculated by deflating the value at current prices with the service sub-index of the urban consumer price index.
2) Farm household consumption
Farm household consumption includes commodity consumption, own final consumption, housing, water, electric and gas consumption, cultural and living services consumption, owner-occupied housing service consumption and banking services consumed by farm households. As with non-farm households consumption, the value at constant prices is calculated by deflating the value at current prices with relevant price indices.
(1) Commodity consumption: The value at current prices is deflated with the goods price sub-index of the rural consumer price index.
(2) Own final consumption refers to the farm and sideline products that are produced by farm households and used for their own final consumption. The price index of the gross output value of the farm, forestry, animal husbandry and fishery price index is used in the deflation.
(3) Housing, water, electric and gas consumption refers to the cash expenses of paying rent for housing and paying for water, electricity and gas for household use. The "living" sub-index of the rural consumer price index is used in the deflation.
(4) Cultural and living services consumption: The service sub-index of the rural consumer price index is used in the deflation.
(5) Owner-occupied housing services consumption. It is considered to be equal to the imputed depreciation of owner-occupied housing. The method for calculating value at constant prices is to divide the imputed depreciation into two parts, i.e., the depreciation withdrawn in the last year and the depreciation withdrawn for housing built in the current year. The depreciation at constant prices in the last year plus the depreciation withdrawn in the current year that is deflated with the rural individual fixed assets investment price index is equal to the depreciation of the farm owner-occupied housing at constant prices in the accounting year.
(6) Banking services consumed by farm households is directly deflated with the rural service items price index.
b. Public consumption
Public consumption refers to the value of the gross output of government minus the sale income of government. It corresponds to government consumption expenditure in SNA.
The production process of government is the process of supplying public services, and the output of government is equal to the current expenditures plus the imputed depreciation of its fixed assets. In calculating public consumption at constant prices, we divide public consumption into four parts according to the structure of government expenditure, i.e., expenditures on goods, expenditures for wages and salaries, expenditures on services and imputed fixed assets depreciation. By calculating each part separately and adding the totals, we obtain public consumption at constant prices. The methods for calculating detailed estimates are as follows:
Expenditures on goods refers to the expenditures on fuel, water, electricity, office goods, furniture, etc. The retail price index is used in the deflation.
Expenditures for wages and salaries refers to compensation for government employees, including wages and salaries, subsidies and employee welfare.
Because the compensation for government employees should in principle be adjusted with price changes to prevent real income from decreasing, the goods sub-index of the urban consumer price index is used in the deflation.
Expenditures on services refers to costs of travel, hotels, posts and telecommunications and staff training incurred by the government in its production activities. The value at constant prices is obtained through deflation with the household service items price index.
Imputed fixed asset depreciation refers to the imputed depreciation of the fixed assets that are owned by the government according to a certain depreciation rate.
As with calculations of owner-occupied housing depreciation, the price index of fixed asset investment of other service industries is used to deflate the depreciation imputed for the newly increased fixed assets of the government. The depreciation deflated plus the depreciation at constant prices in the last year previous year is equal to the depreciation at constant prices in the accounting year.
5.3.2 Total investment
a. Gross fixed assets formation
Gross fixed assets formation refers to the fixed assets that are acquired by resident units in the forms of purchases or transfers or own production minus the fixed assets that are disposed by them. It is broken down by tangible fixed assets such as construction and installation projects, purchases of equipment and instruments and other expenses, and productive intangible fixed assets such as computer software and geological prospecting.
Intangible fixed assets are not separately estimated due to the lack of relevant data. They are included instead in the relevant computer hardware and construction and installation projects. The method for measuring gross fixed assets formation at constant prices is as follows:
(1) Estimates of gross fixed assets formation by ownership and industries at constant prices.
First, get the proportion of construction and installation, purchases of equipment and instrument and other expenses of fixed asset investment by ownership and industries. Second, work out the fixed asset instrument price index for each ownership type and each industry using the construction and installation price index, purchases of equipment and instrument price index and other expense price indices, weighted by the proportions. Third, deflate gross fixed assets formation at current prices with relevant price indices to obtain gross fixed assets formation of each ownership type and each industry at constant prices.
(2) The total of fixed asset formation of all ownership types at constant prices is said to be the fixed assets formation of the total economy at constant prices.
b. Changes in inventories
Changes in inventories refers to the market value of changes in inventories of resident units in the accounting period, i.e., the difference between the value of the inventories at the end and at the beginning of the accounting period.
In the estimates of changes in inventories at constant prices, relevant price indices are used for deflation, but some kinds of changes in inventories at constant prices are directly calculated by multiplying the price at the base period by the increased quantities in the accounting period.
Changes in inventories of agricultural products, such as pigs, goats, grain, poultry and other domestic animals at constant prices are calculated by multiplying their base year prices by increases in quantity during the accounting period. In detail, the changes in inventories of pigs, goats, poultry and other domestic animals at constant prices are equal to the average prices at the base year multiplied by relevant increased quantities in the accounting period. The changes in inventories of grain at constant prices are equal to the mixed average price of grain multiplied by the increased quantities in the accounting period.
Changes in inventories of other goods are calculated in the following way. First, changes in inventories are divided into means of production, means of livelihood and purchase of farm and sideline products according to the uses of the main products of each industry. Then their values are deflated at current prices respectively with the means of production producer price index, the means of livelihood producer price index and the purchases of farm and sideline products price index to obtain values at constant prices. Finally, they are totaled to work out the value of changes in inventories of the total economy at constant prices.
Changes in inventories are also classified by ownership and industries. Their values at constant prices can be calculated using the above methods.
5.3.3 Net exports
Net exports refers to the difference between exports and imports, i.e., the total value of goods and services that are exported minus the total value of goods and services that are imported.
The net exports at constant prices are equal to exports at constant prices minus imports at constant prices. Exports and imports at current prices are deflated with relevant price indices to get exports and imports at constant prices in principle. The calculation method in detail is that the values of exports and imports of goods at current prices are deflated with the price indices of the export and import goods compiled by custom offices. The values of exports and imports of services are deflated with price indices of the exports and imports of goods respectively because of the lack of suitable price indices.
There remain problems in calculating GDE at constant prices. For example, the rough classification means only rather rough, broad categories can be used to obtain the deflation, adversely affecting the quality of the estimates. For some items, especially in services, there are no suitable price indices. In order to improve national accounts at constant prices, we seek to make progress in the following three areas.
First, we plan to make more detailed expenditure classifications. For example, household consumption is classified by food, clothes, household equipment, goods for daily use, medical treatment and health care, traffic, post and telecommunications, entertainment, education and culture, housing, and other services. Gross fixed assets formation is classified according to a more detailed industrial classification into agriculture, excavation, manufacturing, electric power, gas and water production and supply, construction, transportation, storage, post and telecommunications services, wholesale trade, retail trade and catering services, real estate, banking and insurance, and other sectors.
Second, we intend to improve calculations of expenditure components at constant prices. Some necessary price indices are presently not available for calculating GDE at constant prices. For example, there is no service price index, and the import goods price index is worked out only at c.i.f. prices. When calculating public consumption, there are problems with the price indices used for collective welfare consumed by households, public health services, and changes in inventories at constant prices. To deal with the problems above, we plan to try our best to improve price indices and simultaneously to explore new accounting methods. For example, the extrapolation method or unit prices in the base period may be used for the expenditure components when suitable price indices are not available, which will make the estimates more reliable.
Third, we plan to make the terminology of indicators in national accounts conform to the standard in the 1993 SNA, as appropriate to China's current conditions.