Another Look at the
Growth of Output in
Gregory C Chow
This note utilizes data on outputs in physical units for a
sample of important industrial products in China as reported in China Statistical Yearbook (CSY hereafter) published by the State
Statistical Bureau in order to estimate the rates of growth of real GDP and of
industrial output. It was prompted by Young (2003) which claims that the rate
of growth of real GDP in the period 1978-1998 as reported in CSY is an overestimate by an order of 2
percent per year. Following Young (p.1221) “rather than discount the Chinese
statistical record, I embrace it. Accepting all the numbers the statisticians
of the People’s Republic of
II A Look at the Growth of Components of Industrial Output
Indices of real GDP and output of secondary industry (including industry and construction) in constant prices as reported in CSY 1999 (Table 3-4) grew from 100 in 1978 to 638.2 and 916.8 in 1998 respectively, implying average annual exponential rates of growth of 0.09267 and 0.11079. The output indices of industry and construction (components of secondary industry) reached 938.5 and 743.6 respectively, implying average exponential growth rates of 0.11196 and 0.10032 respectively.
CSY 1999 (Table 13-12) provides data on the output of a sample of important industrial products in physical units from 1978 to 1998. From these data I have computed average annual exponential growth rates of growth as presented in Table 1 under the column headed by PRC.
Average Exponential Rates of Growth of Industrial Output
(a) 9 Non-durable Consumer Goods
Chemical Fiber (10000 tons) 0.14430
Yarn (10000 tons) 0.04111
Cloth (100 million m) 0.03908
Silk (10000 tons) 0.04120
Paper and Paper Boards (10,000 tons) 0.07887 0.10911
Sugar (10000 tons) 0.06458
Vegetable Oil (10000 tons) 0.06125
Beer (10000 tons) 0.19529 0.09772
Cigarettes (10000 cases) 0.05244
(b) 5 Durable Consumer Goods
Refrigerators (10000 units) 0.26884
Electric Fans (10000 units) 0.11146
Household Washing Machines (10000 units) 0.19487
Color Television Sets (10000 units) 0.45636 0.25723
Cameras (10000 units) 0.28661
(c) 8 Consumer or Producer Goods
Electricity (100 million kwh) 0.07573 0.09469
Hydropower (100 million kwh) 0.07475
Steel products (10000 tons) 0.07908
Cement (10000 tons) 0.10530 0.10094
Plate Glass (10000 weight cases) 0.11329
Plastics (10000 tons) 0.11612
Motor Vehicles (10000 units) 0.09962 0.18682
Trucks (10000 units) 0.08459
Construction (floor space completed) 0.10364 a 0..09871
Notes: Data for PRC are found in
The first 9 items in group (a) are consumer perishable or semi-durable goods which in general grew more slowly than national income or output as they have income elasticities of demand below unity. The next 5 items are consumer durables with higher income elasticities of demand and grew faster than national income. In addition the outputs of some of these products (and beer) grew rapidly for export. The next 8 items in group (c) are consumer or producer goods. The mean exponential growth rates of the products in these groups are 0.07979 for group (a), 0.26363 for group (b) and .09356 for group (c).
The last row of Table 1 gives the average exponential growth rate (starting from 1985 to 1998 because of data availability) of 0.10364 for construction as measured by square meters of floor space completed as reported in CSY 1999 (Table 14-32). This is very close to the reported rate of growth of 0.10032 for the construction industry in the period 1978-1998. Note also that the growth rate for the output of cement in Table 1 is 0.10530, very close to the reported growth rate for construction.
To examine the rate of growth of industrial outputs based on
our sample, we first estimate the growth rate of the value of the products in
groups (a) and (b) evaluated by their prices in 1987, a year close to the
midpoint of the sample period 1978-1998. Prices in 1987 rather than in 1988 are
employed mainly because 1988 was a year of serious inflation (at an annual rate
of 18.5 percent by the general retail price index) with many relative prices
different from their normal values. Selecting a year earlier than 1987 would
give more weights to the consumer durables which had higher relative prices in
the earlier years. Since the consumer durables had higher growth rates this
would produce a higher growth rate for the combination of groups (a) and (b).
The quantities of these outputs in 1978 and 1998 are given in SYC 1999 (Table 13-12). The prices in
1987 are given in
To summarize the information available from our sample,
groups (a) and (b) combined provides an exponential growth rate of 0.09129;
group (c) provides an mean growth rate of 0.09356 and construction (d) grew in
terms of completed floor space at a rate of 0.10364. How should these growth
rates be used to evaluate the reported growth rates for GDP, for industrial
output and for construction reported in CSY? To arrive at an exponential growth rate for
industrial output comparable to the official rate of 0.11196 we have to make an
upward adjustment of the above rate 0.09129 due to the following factors: (1)
We used the prices of 1987 to weight the physical outputs whereas prices of
earlier years than 1987, including 1978, were used for the calculation of real
output in CSY which should yield a
slightly higher growth rate than the one obtained above. (2) A second source of
downward bias of our method as compared with the CSY method is the absence of new products, notably computers, in
our sample. The appearance of new products which grew rapidly can result in a
much higher growth rate than the one based only on products that existed in
1978. (3) We have not accounted for quality improvement in the products,
counting one television color set in 1998 as the same output as one set in
1978. This is in addition to the first bias that results from the same color TV
set being cheaper (relative to other goods) in 1987 than in earlier years. As
far as construction is concerned, our estimated growth rate 0.10364 confirms
the official rate of 0.10032. The above calculations strongly contradict the
suggestion of Young (2003) to reduce the reported growth rates of
For another check I have selected a period in the economic
The list of outputs of individual manufacturing products is
unfortunately much smaller in the ROC statistical yearbook than in CSY. For all the seven products in both
lists I have provided the rates of output growth in
III. An Examination of the Estimates of Output Growth by Young (2003)
Young (2003) has raised questions regarding the accuracy of aggregate output data reported in CSY. He writes (pp.1227-9), “enterprises are called on to report the value of output in current and constant (base year) prices. The difference between the two series produces an implicit deflator, which is then used to deflate nominal value added (also reported by the enterprises)…Ruoen and Woo argue that many firms assume that the constant price value of output equals the nominal value, that is, the implicit deflator always equals one. This simplifying assumption has been taken by statisticians in other countries, and it seems likely that Chinese firms would find it to be a time-saving approach. More generally, enterprises might assume that the inflation rate has some constant value. Regardless, the assumption of a constant rate, be it zero or positive, will make the GDP deflators insufficiently sensitive in the underlying rate of inflation, such as has occurred during the reform period.“
His main point is that if we deflate nominal output by its implicit deflator to obtain real output, the estimated increase in real output is too large because the deflator underestimates the true inflation rate. By replacing the output deflator by another official price index for each of the three sectors as given in his Table 3 (using the farm and sideline products purchasing price index for the primary sector, using the ex-factory industrial price index for the secondary sector and using the service price component of the consumer price index for the tertiary sector), the official growth rates of real GDP and of the its non-agricultural components from 1978 to 1998 were reduced respectively from .091 and .106 to .074 and .081. The annual growth rates of real GDP according to the CSY estimate and alternative estimate are given in Figure 2 of Young (2003).
The most dramatic difference between the two estimates of
GDP growth occurs in 1989 when the adjusted estimate shows a negative 5.2
percent and the CSY estimate shows a
positive 4 percent. The negative growth is attributed (p. 1232) to “the forces
that precipitated the political unrest of that year.” This estimate does not seem plausible for at
least two reasons. First, there was no sign of significant economic disruption
in the first five months of the year. Peaceful demonstrations did not start
until April and the Tiananmen Incident occurred on
Second, to provide direct evidence of positive growth of industrial output and construction, we compute the ratios of outputs in 1989 to outputs in 1988 for the same list of 23 products as given in Table 1. The ratios are respectively (a) 1.139, 1.024, 1.007, 1.025, 1.050, 1.087, 1.031, 0.980, 1.032 (b) 0.885, 1.110, 0.789, 0.906, 0.785, (c) 1.073, 1.083, 1.036, 1.001, 1.158, 1.081, 0.905, 0.901 and (d) 1.035. As in section II we estimate the combined growth rate for groups (a) and (b) by the ratio of the total value of the 11 products (omitting three products lacking in price data) in 1989 to the total value in 1988, both evaluated at the 1987 prices given earlier. The respective values are 167.57 billion and 165.47 billion, giving a growth rate of 1.013. This growth rate for groups (a) and (b) combined, the mean growth rate of 1.030 for the third group (c) and the rate 1.035 for construction (which accounted for 12.3 percent of the secondary industry in 1988 as shown in Table 2 below) are consistent with the reported positive growth rate of 0.04 for GDP given by CSY. They strongly contradict the claim of a negative rate of growth of GDP by as much as -5.2 percent according to the adjusted estimate of Young.
I have attempted to reproduce the estimates of real GDP for 1988 and 1989 by the method of Young and to pinpoint where they might lead to inaccurate results. Table 2 summarizes the data and my reproduction.
[Insert Table 2.]
The resulting 5.15 percent decline in real GDP is made up of a decline of 4.14 percent in the primary industry, 6.84 percent in the secondary industry and 3.31 percent in the tertiary industry. I have pointed out in the last paragraph that a negative growth of 6.84 percent for secondary industry is a very unreasonable estimate. Furthermore, if we deflate the nominal value of construction 794.0 in 1989 by the ex-factory industrial price index of 1.186 (1988=1.0) to obtain its value 669.5 in 1988 prices, we obtain a rate of change of 1-0.8265 =-0.1735 for construction as given by Young’s method. This alleged negative 17 percent rate of decline in construction is highly inconsistent with the reported rate of increase in completed floor space by 3.5 percent. The calculation for the growth rate in 1989 pinpoints one specific large error resulting from using Young’s method. Therefore the method of Young (2003) for estimating the rate of change of real output can be very unreliable. In fact the large discrepancy between Young’s estimate of negative 5.2 percent and the official estimate of positive 4 percent for the year 1989 alone contributes to almost half a percentage point in the difference between the two estimates of the average annual growth rate for the entire sample period 1978-1998.
Outputs and their Rates of Change in 1988 and 1989 by Young’s Method
GDP Primary Secondary Construction Tertiary
Nominal value 14928.3 3831.0 6587.2 810.0 4510.1
Nominal Value 16909.2 4228.0 7278.0 794.0 5403.2
Price index (1988=1.0) 1.1501 1.186 1.186 1.239
Output in 1988 prices 14173.7 3676.2 6136.6 669.5 4360.9
Output Change,1988=1 0.94945 0.95959 0.93159 0.82654 0.96692
Notes: Data on nominal outputs are found in CSY 1997 (Table 2-9). Price index for primary industry is purchasing price index for farm products (1978=100) given in CSY 1997 (Table 8-11) converted to (1988=1.0). Price index for secondary industry is ex-factory price index of industrial products given in CSY 1997 (Table 8-12). Price index for tertiary industry is the price index of the service component of the consumer price index (CSY 1990, Table 7-17). 1989 Output in 1988 prices for each of the three components of GDP is obtained by deflating nominal output by the corresponding price index. GDP in 1988 prices is the sum of the above three components.
In this note I have utilized data on outputs of a sample of important industrial products and of construction to show that the growth rates of real GDP and output of the secondary industry during the period 1978-1998 as reported in CSY are reasonable and consistent with estimates obtained by examining the output growth rates of four groups of products included in the sample. The same statement applies to the reported growth rates in 1988-1989. These findings contradict the alternative estimates of the rates of growth for the periods 1978-1998 and 1988-1989 provided by Young (2003). I have also pinpointed places where Young’s method has led to serious errors.
In Chow (1985; 2002, pp. 90-91, 152-3; 2004, pp. 59-63) I have suggested that statistics reported in CSY are by and large fairly accurate. This note is a confirmation of that view. It shows that the performance of the Chinese economy in terms of an average growth rate of about 9.5 percent for GDP and about 11 percent for industrial output in the period 1978-1998 as reported in China Statistical Yearbook is reliable although the Yearbook may contain errors in reporting some other aspects of the Chinese economy.
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