Broken Abacus?

244 Pages·2015·2.53 MB·English

by  Daniel H. Rosen

SEPTEMBER 2015
Broken Abacus?
A More Accurate Gauge of China’s Economy
authors
Daniel H. Rosen
Beibei Bao
A Report of the CSIS Freeman Chair in China Studies

Broken Abacus?
A More Accurate Gauge of
China’s Economy
AUTHORS
Daniel H. Rosen
Beibei Bao
FOREWORD
Carsten Holz
A Report of the CSIS Freeman
Chair in China Studies
September 2015
Lanham • Boulder • New York • London
About CSIS
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Contents
Foreword v
Ac knowl edg ments vii
Executive Summary ix
Introduction: A $10 Trillion Question 1
1. A Framework to Mea sure a Country’s Economy 4
Why We Mea sure Determines How We Mea sure 4
The System of National Accounts 8
Gross Domestic Product under SNA 12
Is China Concordant with the SNA Framework? 13
A Still Evolving System 20
2. A Diagnosis of China’s GDP Data 22
Time Series Data versus Snapshot Data 27
Statistical Terms with Chinese Characteristics 46
Institutional Arrangements and Constraints 57
3. A Better Abacus? 66
Choice of Mea sure ment Year and Other Basics 68
Secondary Sector 70
Tertiary Sector 105
Primary Sector 160
Research and Development Expenditures 178
Appendixes 191
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4. Conclusions and Implications 201
Our Headline Results and China’s Official Revision 201
Through Domestic Economic Eyes: Revisiting Debates 205
Through China’s Po liti cal Eyes: GDP in a Broader Context 214
Through Foreign Eyes: A Resized Rival 218
About the Authors 224
Iv | DANIEL H. ROSEN AND BEIBEI BAO
Foreword
No other nation in the world loves to keep track of things more than China does. Its
history of official rec ords is mea sured in thousands of years. Mea sure ment was also
central to the planned economy: planners needed accurate information from enterprises in
order to design production and investment plans. In the reform period, mea sure ment was
soon needed for everything from determining the remuneration of managers of state-
owned enterprises to deciding on the fate of provincial governors or setting monetary
policy. More often than not, the mea sure ment that was needed was a mea sure of output: in
its most recent incarnation, value- added at the enterprise level, gross regional output at the
provincial level, and gross domestic product (GDP) at the national level.
For more than two de cades, GDP has been the centerpiece of national economic policy
and the po liti cal psyche. The front page of the People’s Daily would proudly proclaim the
latest growth achievement. But given their prominence, these data have also repeatedly
come under scrutiny.
In the Great Leap Forward, the data are known to have been falsified. Otherwise,
Western researchers thought, the data were quite reliable. In the early 1990s, the World
Bank felt that Chinese GDP was underestimated, but it soon abandoned its alternative
calculations. Shortly thereafter, economic historian Angus Maddison claimed that Chinese
GDP was overestimated. In the second half of the 1990s, China’s National Bureau of Statis-
tics (NBS) commissioner felt that there was a grave danger of falsification and brought to
public attention the “wind of falsification and embellishment,” which then triggered a
campaign sanctioned by the Party Central Committee to end data falsification by reporting
units and localities. It also triggered widespread domestic and foreign suspicion that
China’s GDP growth and China’s GDP levels are overestimated.
This is where Daniel Rosen and Beibei Bao come in, providing an outsider’s in de pen-
dent estimate of China’s true economic size. In a heroic effort, they take apart the Chinese
statistical system to reassess the choices the NBS makes. They do so armed with the tools of
international statistical practices and an unpre ce dented understanding of the operations
of China’s statistical system.
Reading through their dissection and recompilation of Chinese data, it is hard not to
become convinced that the authors are on to something. Their alternative calculations,
accompanied by one robustness check after another, sector for sector of the economy,
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suggest that researchers outside the NBS have finally achieved what was previously
deemed impossible: come up with a GDP figure for China that is likely a more accurate
reflection of reality than the official figure. Their results are so solidly founded that they
redefine the debate about China’s national income accounting system and pose a direct
challenge to business as usual.
The authors find a fair amount more GDP than proclaimed by the NBS. But does that
additional GDP matter? We all know that China is big. At first sight, a bit more output may
not seem a big deal, but once the authors delve into the possible implications, it quickly
becomes apparent that this is no minor correction that one can easily ignore. From the
sectoral analysis to the time series analysis, the amount of newly found GDP has some very
serious implications that one would do well to take note of. I am also left with some hope
that the authors’ work may yet contribute to a quantum leap in China’s national income
accounting statistics, in terms both of the degree of transparency that the NBS will have to
adopt in order to be able to engage with a challenge such as this and the actual GDP calcu-
lation methods that the NBS may choose to use in the future.
Carsten Holz
Hong Kong University of Science and Technology
Harvard University
March 19, 2015
vI | DANIEL H. ROSEN AND BEIBEI BAO
Ac know ledg ments
The authors are grateful to a broad set of people, without whose counsel and enthusiasm
this undertaking could not have been accomplished. First, a number of anonymous
career statisticians at China’s National Bureau of Statistics provided essential critique to
our work. Internationally, Markus Rodlauer at the International Monetary Fund, Liu
Xiaofan formerly of the World Bank, and Guo Jiemin at the U.S. Bureau of Economic Analy-
sis provided valuable insights into the evolution of China’s national accounts. A long line of
respected academics have built the foundations on which this effort stands. We are most
indebted to Carsten Holz at the Hong Kong University of Science and Technology, our
principal adviser, whose unrivaled knowledge of Chinese statistics many times pointed us
in the right direction. Zhang Jun at Fudan University shared important perspective on
ser vices and expenditure data. We have learned from discussions with Yao Yang, Huang
Yiping, Xu Dianqing, Liu Shiguo, Ma Minnan, Scott Rozelle, Zhao Nan, Wang Yafei, and
Wang Wensheng. In par tic u lar, in excellent work on China’s input- output tables, Li Xiao-
qin, formerly of the Conference Board, inspired elements of our methodological design. We
are grateful to a number of non- Chinese China hands, including Stephen Green, Calla
Weimer, Tom Orlik, and Andrew Polk, who offered useful views based on years of observa-
tion. Fan Dianhua, Li Tingzhen, and Cai Hongyu added to our understanding of specific
industry conditions. Participants in a study group convened to shape our research ap-
proach, including (in alphabetical order) Nick Borst, David Dollar, Bob Goldberg, Nicholas
Lardy, Wayne Morrison, Derek Scissors, Brad Setser, David Stockton, Kim Zieschang, and
several of our colleagues at the Center for Strategic and International Studies (CSIS) men-
tioned below. Three of the scholars named above also served as final reviewers of our
manuscript and offered additional commentary along with their endorsement.
A number of our Rhodium Group colleagues made important contributions. Excellent
research work by Wang Yaqi, Cassie Gao, Dai Qi, and Anna Snyder helped manage a huge
pool of data. Shashank Mohan, the firm’s quantitative director, provided major early- stage
inputs. Along the way, Thilo Hanemann and se nior associate Jacob Funk Kirkegaard both
provided advice and guidance. Jasper Hitchen, our superb in- house editor, made a complex
text much easier to read.
Our collaborators at CSIS helped orient the study at inception by hosting our 2013
study group and at the finishing stage. We wish to thank Christopher Johnson, Matthew
Goodman, and Michael Green in par tic u lar, as well as Dr. John Hamre for inviting us to
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collaborate with the Center on this significant endeavor. Grace Hearty and Nicole White
provided great administrative support.
Last but not least, we thank our families, in par tic u lar Anna and Shaofeng, who en-
dured our preoccupation with this study over the past two years and provided great en-
couragement. We dedicate this study to them.
vIII | DANIEL H. ROSEN AND BEIBEI BAO