Beijing to roll out new GDP formula

PHOTO: Beijing to roll out new GDP formula

Months after President Xi Jinping pledged to wean government officials off their obsession with GDP growth, China is putting talk into action by rolling out measures to broaden the way its 52 trillion yuan (S$10.7 trillion) economy is assessed.

A new formula in calculating gross domestic product will be introduced, with increased weightage on non-economic factors, said China's top economic planning agency in a report by the Xinhua news agency last week.

They include "resource consumption, environmental cost, work safety and local debt in assessing local economic growth, and put more emphasis on employment, resident income, social security and people's health".

"This is intended to guide local authorities to shift more attention to economic restructuring," Mr Xu Shaoshi, head of the National Development and Reform Commission, was quoted as saying.

New rules to include government spending on education, health care and other social services in measuring provinces' economic output are set to be rolled out along with the new accounting mechanism, which will be finalised by early 2015.

This reflects the greater importance attached to people's livelihoods and domestic spending, according to Guangdong-based economist Li Youhuan.

The changes follow a key policy meeting - the Third Plenum - earlier this month, which outlined reforms like introducing green benchmarks to evaluate officials and improving local governments' transparency. The new accounting system will include aspects of a modern economy like patents and employee stock options, State Information Centre researcher Niu Li told The Straits Times.

This may offer a pleasing side effect: China's accounting system would not only be more in line with the standards in developed economies, but could also produce a one-off boost in GDP.

Take research and development, for instance. By counting this as an investment rather than expense, and making other changes, the United States added 3.6 per cent to the size of its US$16 trillion (S$20 trillion) GDP, or the "equivalent of a small country", said Mr Niu.

The new formula also aims to reflect more accurately the surge in land and property prices in the past decade. The Third Plenum called for reforms to make it easier for farmers to sell or transfer the rights for use of their land, paving the way for China's statisticians to use market-based rates for land and property to calculate GDP.

Such changes are in line with Mr Xi's preference for quality, balanced growth and cleaner statistics. He told Communist Party cadres in June that "we should no longer call someone a hero simply based on GDP growth rates".

Previously, GDP benchmarks for promotion incentivised officials to pump up growth by investing heavily. In particular, many splurged on projects that tended to be energy-intensive or exacerbated problems of overcapacity, while ignoring softer targets like health care and social welfare.

Mr Xi wants to tackle this by broadening the way GDP is measured, which in turn affects officials' appraisal systems.Still, it is unclear whether a new GDP formula alone can effectively address long-standing criticism about China's bloated data.

Peking University's HSBC Business School associate professor Christopher Balding, whose research has indicated China's real GDP could be overstated by US$1 trillion, said the new system was "a step in the right direction".

But Beijing needs to "address more fundamental problems of data manipulation at the local and central government levels", he added. This could be naming and shaming provincial officials who over-state or tweak their data.

Additional reporting by Carol Feng

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