China Adopts "New" GDP-Boosting Accounting System

Tyler Durden's picture

China's GDP is about to undergo the same magic that US GDP received earlier in the year. The "Chinese system of National Accounts" will see five significant adjustments that are expected to (surprise) boost the size of the nation's estimate of its GDP. The National Bureau of Statistics is considering making the changes to reflect the latest economic and social developments and implement the reform guidelines unveiled at the 3rd Plenum recently. From the addition of research and development - intellectual properrty - (just as the US did) to including mark-to-market changes (read rises) in employee stock options and real estate in consumption data, the Chinese appear dead set on making a once-unbelievably goal-seeked number into an entirely fantastical representation of reality (which of course enables moar higher manipulation as to avoid any debt-to-gdp hurdles that the real world might see as a concern).

 

Via Xinhua,

The nation plans to give GDP readings and the revised historical figures of this indicator under new calculation method after the end of this year...

the U.S. revised its GDP data, the most important amendments is to research and development expenditures as well as entertainment, literary and artistic originals such as fixed capital formation expenditure included in GDP. This great repercussions in the international arena, in China also attracted relatively widespread concern, there has been speculation heated debate whether China's national accounting system to do the appropriate amendments?

New accounting system will likely increase in total GDP:

The plan includes 5 key sections that change how the nation's balance sheet and income (consumption) is calculated...

1. the introduction of the concept of intellectual property products, research and development expenditures will be included in GDP

 

2. the introduction of "economic ownership" concept, so that more reflect the actual accounting results

 

3. the rapid development of the real estate market, housing prices and rents are rising

 

4. land contract management rights transfer income to become an important part of farmers' income

 

5. the employee stock options included workers compensation

Which leaves 3 critical aspects of make-believe for Chinese GDP statistsics:

1. Research and development expenditure will be included in GDP - based on best guesses, historical and current R&D will be "priced" into GDP data leaving plenty of scope for a goal-seeked guess at what the number needs to be.

 

2. Accounting of actual final consumption - this means that government-provided services - that improve people's living standards - will be 'valued' and added to consumption data. This includes education, health, social security and other spending data. Furthermore, the mark-to-market gains from employee stock options will be included in final consumption data (so even more need to keep that stock market high for the PBOC)...

 

3. Gains (losses) from housing - the GDP data will include some adjustment based on the mark-to-market of home prices as a consumption-based positive. In other words, as the bubble grows, the rise in house/real estate prices will be included in GDP consumption calculations

 

In other words, China will be adding to its base GDP data all the bubble-driven aspects of the economy as the bubble continues to grow... one can only imagine what that will do to a) volatility, and b) the downswing when these 'adjustments' are forced the 'wrong' way...

On the bright side, this plan is not expected to be fully implemented until 2015 - and who knows what this will all look like by then...