China adjusts added value accounting to mitigate data manipulation, clean up GDP statistics
- China has revised the way it calculates the added value of the financial sector to make GDP figures more accurate, clamp down on data manipulation
- New method will lead to some changes in aggregate figures, analysts say, but numbers expected to normalise by next year
The correction was also implemented to aid efforts from financial regulators to prevent capital from idling in the financial system and provide more support for the real economy, they argued.
Aggregate financing, which includes bank credit, bonds and stock market funding, shrank by 18.9 billion yuan (US$2.6 billion) in April from the previous month. The People’s Bank of China, the country’s central bank, said on Saturday the decline was the first observed since October 2005.
The M1 money supply – which comprises currency in circulation plus some banking deposits – dropped 1.4 per cent in April year on year, the first decline in more than two years.
“April’s financial data reflects far more complex issues than it appears,” China International Capital Corporation, a Beijing-based investment bank, wrote in a note on Sunday.
According to Financial News, a publication under the central bank, regulators are now calculating the financial sector’s added value – a major component of GDP – by net interest incomes, net bank charges and commission incomes.
Previously, value was determined primarily by the year-on-year growth rate of bank deposits and loans, a method which was easier for local authorities to manipulate to artificially enlarge the reported size of their economies.
To expedite statistical GDP growth, some local banks temporarily “borrowed” deposits from companies or banks in other regions and returned them once assessments were concluded, Shanghai news outlet Yicai said in an article over the weekend.
“Inaccurate data can result in suboptimal decision-making by policymakers who lack real information to accurately assess the financial sector and the overall economy,” it warned.
China has a relatively high share of financial added value in the accounting of its GDP compared to other countries. The figure is close to 8 per cent, surpassing the 4.8 per cent average for members of the Organisation for Economic Co-operation and Development.
Disruptions to money and credit growth are expected to be more concentrated in the second quarter and are likely to persist into the second half of the year
The PBOC and the National Bureau of Statistics began to adjust the quarterly accounting of financial added value in the first quarter of this year.
“Given that the optimisation measures only became widely known by the market since April, its disruptions to money and credit growth are expected to be more concentrated in the second quarter and are likely to persist into the second half of the year,” Financial News wrote in an article on Saturday.
The new calculation method will alleviate pressure on financial institutions to make temporary large-scale deposits and loans, consequently resulting in a contraction in the money supply, total loans and other readings, the newspaper said.
“Particularly when conducting year-on-year comparisons, indicators such as increment and growth rate of financial added value will be significantly influenced, and these disruptions may extend into the following year before gradually dissipating.”
