China adjusts GDP match treatment of R and D to USA and other countries

China’s statistics authority altered the way quarterly GDP data are calculated, a move analysts have called a step toward meeting international standards and improving accuracy.

Research and development (R&D) expenditures that can economically benefit companies will no longer be calculated as intermediate consumption, but as fixed capital formation, the National Bureau of Statistics (NBS) announced on Tuesday.

That will add 131 billion U.S. dollars to last year’s GDP figure.

The value of 2015 GDP was revised up by 1.3 percent to 68.55 trillion yuan ($10.3 trillion) from the previously announced 67.67 trillion yuan. The year-to-year growth rate was barely changed at 6.9 percent.

China aims to boost its R and D spending as a share of GDP to 2.5 percent by 2020.

The US spends about 2.7% of GDP on R and D.

South Korea and Israel spend about 4% of GDP on R and D.

Cheng Zilin, head of the NBS’s Department of National Accounts, said the revision better reflects the contribution of innovation to economic growth.

In recent years, China has promoted science, technology and creative development, with rapid growth in R and D expenditures and an increasingly important role for R and D in economic growth.

However, the old calculation method failed to reflect the importance of R and D, as intermediate consumption only measures value of goods and services that are transformed or entirely used up in the course of production.

According to the System of National Accounts 2008 (SNA 2008), an international standard for measuring a country’s economic activity, R and D expenditures that yield economic benefit should not be considered “completely used up in the accounting period,” and thus should be recorded as fixed capital formation, which is part of GDP.

This methodology, introduced in 2009, has been adopted by most member countries of the Organization for Economic Cooperation and Development (OECD), including the United States, Canada and Australia.

SOURCES – Reuters