China - Statistical system in transition

' Report No. 9557-CHA China Statistical System in Transition September 22, 1992 China and Mongolia Department MICRC)FICHE COPY East Asia and Pacific Region Office of the VicePresident,DEC Title: STATISTICAL SYSTEM IN TRANSITI' Author: RAJARAM, A. Extt. :82464 Room: Dept.:AS3C0 FOR OFFICIAL USE ONLY U Document of the World Bank This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS (As of June 31, 1992) Currency Unit - Yuan (Y) $1.00 - Y 5.46 Y 1.00 - $0.19 FISCAL YEAR January 1 - December 31 ABEREVIATIONS AND ACRONYMS AFA - Accumulation of Fixed Assets CPI - Consumer Price Index DRC - Development Research Center ESCAP - Economic and Social Commission for Asia and the Pacific EUROSTAT - Statistical Office of the European Community FIFO - First-In/First-Out GDP - Gross Domestic Product GFCF - Gross Fixed Capital Formation GSO - Gross Social Output GVAO - Gross Value of Agricultural Output GVIO - Gross Value of Industrial Output ICP - International Comparisons Project I-0 - Input-Output ISIC - International Standard Industrial Classification MPS - Material Product System NMP - Nst Material Product NVA - Net Value Added OG - Own-Grain RPI - Retail Price Index SNA - System of National Accounts SPC - State Planning Commissioi, SPB - State Price Bureau SRC - System Reform Commission SSB - State Statistical Bureau TVE - Township and Village Enterprise  FOR OMCIUL USE ONLY CHrNA STATISTICAL SYSTBM IN TRANSITION Preface This report is based on the findings of a mission comprised of R. Chander (Statistical Advisor, DECVP, Mission Leader), Michael Ward (Principal Economist, EAlCO), Mete Durdag (Senior Economist, EA2CO), Albert Keidel (Consultant), and KC. Yeh (Consultant), which visited China from November 4-20, 1990. Shahid Yusuf (Lead Economist, EA2DR) joined the mission for the first week while Chen Xingdong (EA2CH) assisted the mission in the field. Benjamin King (Consultant) prepared background documentation for use by the mission members. Anand Rajaram (Economist, EA2CO) assisted with the preparation of this report. The mission was hosted by a team led by Mr. Long Rua, Director, Systems and Methods Department, State Statistical Bureau (SSB). The mission met with various departments of SSB in Beijing and with officials of the State Planning Commission, the Development Research Center, State Price Bureau, Ministry of Foreign Economic Relations and Trade, the Academy of Social Sciences, and the Systems Reform Commission. The mission visited Chongqing and met with officials of the Municipal Statistical Bureau and the County Statistical Offices. The mission wishes to record its thanks to officials of SSB for arrangements that allowed fruitful and constructive discussions. The report reflects comments received from the Chinese authorities on the discussion draft. This document ha a restricted distribution and may be used by recipients only in the performance I of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  - I - STATISTICAL SYSTEM IN TRANSITIO Table of Contnst EXECUTIE Som . S**000 0**90 0 00 0 * 0 0 0 IV Ao* IntroductiMon , . . . . . . * . * * . * * *0 * * * * * 1 so Brief History. . . . . . . . . 0 . a . * . 0. * . . . 3 Co Features of Chinal's Statistical System . . .0 . a * . . 5 D. Agenda,fortheture .. .........a.... v7 R. Structu thReport ..............a .. 10 I. NIC. ACCOWtS In Cj= MRICES .. . . . . . . . . . 11 AD Introduction t . . o . . . . . . . . . . . *. . . . . . 11 B. Structure of the Statistical System . . . . . . . . . . 11 C. Chinals System of National Accounting . . . . .0. .. . 12 D. ector Production and Incom. . . . . . . . . a. . . 24 soFinal Expenditure Accounts . . o . . . . . . .. . . .. . 34 III. U SElISECaR . . . . . . * * * * * * * * * * * *0 * * * 39 A' Introduction . . . . . . . . . . . . . . . . . . . . . . 39 a. Concepts and Hthods e o .. . . . . . . . . . .. .. . 39 Co Coverage Issues . . . . . . . . .. .. . . ... . . . 45 Dv Valuation Issues .. . . * . . . . . . ...... .a. .. ..... 47 IV. CHN'S RICE SYSTEm AND NATIONA ACO AT GgK= MCI$ . o o -0 .*.0.0. . S . . .0.*.0. 00 0S 0 S 0 * 0 49 Ao Prices in China . . . . . . . . . . . . . . . . . . . . So D. Official Constant Prices, Compoar,abole Prices,g end Def lators * * o * * * * * * 0 0 0 0 0 0 0 0 * * * 0 * 0 52 C. Measureoet at Constant Pricos .O . a . a . . . . . . . 54 V. CEIICES 0 5 0 0 0 0 0 0 0 0 e * 0 0 a 0 0 a 0* 0 0 0 0 0 59 A* Introduction * * 0 * * * 0 * * * * * * o 0 0o 0 a 0 * * 59 B. Chbna'c Price survey* *. * . .* * * 0 * * 0* * * * * * 59 C. Role of the State Price3 uresu. o o oo*oo. . 63 D. China'e Price Indices . . . . . . ooooooe * . . 64 S. Conclusion .0. .* * * * * 0 * 0 * 0 * * 0 * * 0 0 0 0 0 69  - ii - Page No. Vl* HOUSEHOLD SURVEYS . . . . . . . . . . . . . . . . . . . . . 70 A. Introduction . . . . . . . . . . . . . . . . . . . . . 70 B. Rural Household Survey History . . . . . . . . . . . . 71 C. Urban Household Survey History . . . . . . . . . . . . . 72 D. General Survey Administration . . . . . . . . . . . . 74 E. Samplings Rural Household Survey . . . . . . . . . . . 76 P. Samplings Urban Household Survey . . . . . . . . . . . 77 G. Urban Survey Coverage .. ................ 9 9 .9 9 99 78 H. Own-Grain Population Size Estimates and Implications for Analysis .**. . . . . . * * * * * . . . * . . 81 I. Survey Content and Uasge ... . . . . . . . . . . . . . 83 VII. Q*UANTITATIVE ISSUES RELATED TO SSB's GDP AND GROWT MEASURES . . ... .. .. .. .. .. .. .. .. * * * *. . . 85 A* Introduction 9 * . . . . . . . a . . * . . . . . . . . . 85 B. Issues Important for Single-Year GDP Measurement Corrections . . . . . . . * . . . . * . * . . . . . . . 87 C. Adjustments to Historical Growth Trends . . . . . . . . 95 D. A Proposal for Quantitative Estimates for Apparent Biases .*.9.9.9.... **9**9 ... ... ......... 99 VIII. ASSESSMENT OF THE NEW SYSTEM OF ACCOUNTS . . . . . . . . . . 101 A. Introduction .. .* * * * .. * * * * * * . .. * * * * * 101 B. Creation of China's Hybrid System . . . . . . . . . . . 101 C. Design cf the Full Hybrid System. ........... 102 D. Structure of the Full Hybrid System . . . . . . . . . . 103 Z. Features of the Hybrid System . . . . . . . . . . . . . 104 F. The Next Phases for China's Hybrid System . . . . . . . 106 IX. ORGANIZATION AND TECHNICAL ASSISTANCE . . . . . . . . . . . 116 TABLES IN TEXT 2.1 Output (Value Added (GDP)] .. . . . . . . . 22 3.1 China: Output and Employment In the Service Sector, 1952-89, Selected Years . . . . . . . . . . . . . a . . . 43 3.2 Gross Value Added, The Service Sector, 1987 . . . . . . . 44 3.3 Subsidies and Losses (1984) . . . . . . . . . . . . . . . 48 4.1 Price Deflation Methods by Sector . . . . . . . . . . . . 55 5.1 China's 1988 Price Indices . . . . . . . . . . . . . . . . 65 6.1 Chongqing Urban and "Nonagricultural" Populations . . . . 80  - iii - TABLES IN TEXT (cont'd) 8.1 GDP by Industrzal Origin . . . . . . . . . . . . . . . . . 111 8.2 CDP by Institutional Sectors . . . . . . . . . . . . . . . 112 8.3 GDP by Social Sectors . . . . . . . . . . . . . . . . . 113 8.4 Calculation of GDP by the Distribution Method . . . . . . 114 8.5 GDP by End Use . . . . . . . . . . . . . . . . . . . . . . 115 GUMRT IN TSX 9.1 China's Statistical System . . . . . . . . . . . . . . . . 121 9.2 State Statistical Bureau Organization Chart . . . . . . . 122  -iv - cia STATISTICAL MYSTEM IN TRANSITION Execu&tIv Sunnelr A. Over2ri i. The tjA for Accelerated Statistical Lqfg.g. China has recently begun systematic and far-reaching statistical refoi-.s designed to accommodate its incraeingly market-oriented economy. The current phase of these statis- tical reforms has led to the introduction of survey methods to supplement full reporting. In addition, China has attempted to modify its national accounting framework. A "Hybrid System" is the process of development that builds upon the Material Product System incorporating Information on nonmaterial sphero activities to calculate aggregates that approximate those In the UN's System of National Accounts. This repr-sonts a marked lmprovement over earlier ad hoc reform arrang e0nt and shows considerable ingenuity in combining proreform and International conventions. Given the scale and complexity of China's economy and statistical needs, the Rybrid System is en ambitious and challnging program. However, the Hybrid System suffers from a variety of shortcomings and may be insufficiently responsive to China's evolving circumstances, much less ChIna's future needs as economic reforms unfold. ii. Long- and Short-term Transitions. China's statistical system is currently in transition--in two senses. In a long-term sonse, the system li In transition from Its pre-1978 desigA to an eventual Chinese version of the United Nations' System of National Accounts (SNA), the basis of moet statis- tical system In use worldwide. The Material Product System previously in use relied heavily on the administrative collection of data recorded in a plan- oriented format and ignored nonmaterial sphere activities., The SNA, on the other hand, encompasses all economic activit_ioo. China's long-term reform goal is an "SNA with Chinese characteriatica," and this statistical transition is epected to lat at leat another ten years. Over the short term, China's system is in transition from a system of ad hoc reforms introduced In the 1980. to the Hybrid Systm's full Implewntation, scheduled for 1995. The ChInese see this as a necessary stage in the longer-term development of an "SEA w1th Chinese characteristics." iII. Currnt e fos In Relation to SEA Standards. Chinese documentation frequently refers to the Hybrid Systm itself as the "Chinese SNA," but the Hybrid system falls short of SNA standards in four important respects* First, although the Hybrid System's national accounting framework hs introduced many SNA elemets missing In the IPS, the combination of activity classifications and sector categories Is incomplete and lacks the versatility of SNA classifi- cation functionally oriented for a market economy. Second, data collection chonnels underplinnig the Rybrid Systm are administrative and hierarhbleal, requiring partil data aggregation at lower levels in the statistical system and resulting In lower reliability and higher cost then in a survey-oriented collection system. Third, data In the Hybrid System are based almost entirely  -v - on UPS statistical concepts at the grassroots collection level, relying largely on plan-oriented physical indicators and much le on market-oriented financial indicators, rasulting in distortions in reporting for some sectors, especially services. Finally, the Hybrid System Is based on pricing, valua- tion and reporting conventions which misrepresent actual levels of useful economic activity in a variety of aector&, such as housing and in-kind employee benefits. Subsequent reforms need to address all of these sbortcomings before China can enjoy the greater accuracy and flexibility promised by the SNA. iv. RoPortina of Out2ut, Income. and Final Use. Overall, China's national accounts underreport output, income, and final use for many important sectors because of (a) scope limitations to data collection, (b) distortions in recording during grassrooto data compilation, (c) conceptual misrepresenta- tions of actual subsidy payments, and (d) insufficient value imputation to subsidized free or low-cost transactions. Some of these influences trigger a multiplier effect, becuase higher household consumption valuation, for exam- ple, implies higher labor cost valuation for every ector in the economy. In addition to underreporting CUP components In current prices for any given year, SSB's present methods also exaggerate China's real growth rate--in large part because CNP price deflator. rely on UPS concepts and underreport the impact of price changes, resulting in insufficient corrections for inflation. Many of these issues will becoma more important as economic reforma--espe- ciall!' price reforms--continue, leading to even larger distortions. v. pomesticallv-Funded Reforms and International Assistance. Recog- nizing the inertia of China's traditional statistical system and acknowledging the need for continuity with accustomed methodologies, this report recommends a parallel two-track design to reforms beyond the Hybrid System. One track would continue to improve Hybrid System coverage through existing administra- tive and ad hoc survey channels, and a second track would develop--among other changes--independent SNA measures based on concepts and techniques that reflect market-oriented financial data to measure output, income, and final use. The recommended program depends critically on a domestically-funded large-scale modernization program supplemented by compatible international provision of expertise, training, and computer technology. B. a_tional Accounts vi. Intesration of "Material" and "Nonmaterial" Variables. China's NPS national accounts by definition report only "material" output and consumption, which ie to say, only output of physical commodities and those services making direct contribution to the production of physical commodities. At the same time, UPS definitions treat depreciation as an intermediate-input category. National income by these definitions is reflected as Net Material Product (NMP), which it reports by sector of origin as well as final use categories, and which it measures in current prices, along with historical index numbers showing real growth. The Hybrid System reports output In "nonmaterial" service-industry sectors such as health care, education, passenger transport, government administration, and residential housing. The Hybrid system combines nonmaterial services with UHF and depreciation satimtes to form its officially reported GNP statistics, which regularly appear by sector of origin--but not by sector of use--measured In current prices, together with  - vi - index numbers for historical real grow-th. Hybrid System estimates oi China's GNP are thus largely an elaborate formalization of ad hoc calculations earlier in the 1980s, which estimates GNP by attaching depreciation and nonmaterial output estimates to measures of NMP generated mainly by traditional NP3 methoda. vii. Sources of Discrgnancv. The presently compiled GDP accounts by final-use category reflect internal inconsistencies and reporting distortions. In general, data collection presently underreports output and incomi, so that when aggregnte estimates for these variables are combined with demand for intermediate production inputs, remaining output might be insufficient to account for the scale of goods consumed by households and government or used for investment and net exports. As a result, a discrepancy arises between officially reported GNP and what would be obtained if shortcomings in the scope of data collection methods and valuation conventions were connected. viii. Concern over the scope of coverage is greatest in sectors most affected by reforms, such as rural services, township and village enterprises, and services produced by the unofficial "floating" labor force of rural-urban migrants. In addition, with the breakup of administrative reporting through the commune system and with the conversion of agriculture to a household production basis, reliability of farm output reporting has deteriorated. Farm reporting inconsistencies are most serious for grain, vegetables, and animal husbandry. This report recommends--in addition to long-term ref!orms in data collection methods--that in the short term, SSB make satisfactory estimates of the degree of underreporting by sector and incorporate these estimates into subsequent GlYP statistics. ix. Pricing and Undervaluation. A second major cause of underreported GNP is the low valuation which Chinese prices and subsidy conventions assign to many act