Accounting revisions and a business census will boost China’s GDP stats by about 15% for 2013-2015

China’s statistics bureau is predicted to announce results of its third national economic census this month after a year’s worth of interviews and data collection from millions of businesses. The past two, published in 2009 and 2005, prompted additions to gross domestic product estimates as the value of services was revised higher.

This time around, 2013 GDP will be revised up by 1 to 3 percent — as much as about $275 billion — and 2014 GDP growth will be bolstered by 0.1 to 0.3 percentage point, according to the median forecast of 12 economists surveyed by Bloomberg News.

Liu expects the revisions could add 0.1 to 0.3 percentage point to 2014 GDP growth and has increased his estimate from 7.2 percent to 7.5 percent on accelerated budget spending, stabilization in property and seasonal data effects.

The national economic census is conducted about every five years to gather information on the manufacturing and services industries. Over 10 million businesses and about 60 million individual enterprises were visited early this year by about 3 million census takers, according to the official Xinhua News Agency.

The nationwide review may help offset underrepresentation of China’s rapidly-expanding services industry. The past two censuses led to a 16.8 percent revision to 2004 GDP size and a 4.4 percent increase in 2008.

I have adjusted the 2015 GDP forecast from the Economist. Hong Kong and Macau add about $370 billion to China’s GDP total would put 13.74 trillion China and at 74.5% of the US economy. 2% annual strengthening in currency and 4% annual differential in GDP growth over the USA would mean China would pass the USA in overall nominal economy in 2020. Also, 2019 would have another China business census adjustment. Odds would indicate that 2019 would be when China (including Hong Kong and Macua) would pass the USA because of the 2019 business census. Hong Kong and Macau are part of China but are separated in many statistical reports.

Adjustments to the NBS’s accounting method will also likely lead to revisions. Research and development spending will probably be included as investment instead of as a cost.

Accounting Changes

Another change that may boost the size of 2013 GDP, though not the 2014 growth pace, is a new calculation of the economic contribution from home owners’ accommodation. In the past, the NBS priced self-owned residency on historical costs, while the new method will value that based on estimated rental costs using current market rates.

The better services sector data and accounting method changes will boost the level of 2013 GDP by 8 to 10 percent, said analysts including chief economist Liang Hong at China International Capital Corp.

Economists including Mizuho Securities Asia Ltd.’s Shen Jianguang, Haitong International Securities Group Ltd.’s Hu Yifan and ANZ Bank’s Liu said they have taken into account likely revisions in their 2014 growth forecasts.

“China is using an upgraded methodology and the results should be taken seriously,” Daniel Rosen and Beibei Bao at Rhodium Group wrote in a research note. “Beijing is counting activity previously underestimated, and converging toward international best practice.”

Rosen and Bao said that the National Bureau of Statistics will likely revise the 2013 GDP level up by 5 to 10 percent.

The revised base, along with a 6 to 7 percent growth rate through 2020, will add tens of trillions of yuan to China’s economy. “Securing economic growth is no longer a valid excuse for stalling on reform,” the analysts wrote.

The US had statistical adjustments made to its GDP calcs (adding in entertainment and creative software that boosted GDP by 3%). Nigeria did a GDP rebasing that boosted GDP by a large amount.

The new accounting and census will be the going forward official numbers. IMF and Worldbank use the official national numbers as reported.

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