A reasonable look at China's GDP (II)
- By Xia Changjiang
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E-mail China.org.cn, March 4, 2016
Fixed-asset investment v.s. fixed capital formation
In China, fixed capital formation accounted for a large portion of GDP. Statistically, it measures the value of acquisitions of new or existing fixed assets by the business sector, governments and "pure" households.
Doubts were expressed over the Chinese calculation, because the gross fixed capital formation didn't fit with total fixed-asset investment.
According to the rules of China's National Bureau of Statistics, fixed capital formation covers seven categories: dwellings, other buildings and structures, machinery and equipment, cultivated biological resource, mineral exploration and valuation, computer software and weapons systems. However, according to SNA2008, which is the latest version of the international statistical standard for national accounts adopted by the United Nations Statistical Commission (UNSC), there should be more categories. So, above all, China's GDP should be higher if it adopts the international calculation method.
Besides, we can't compare fixed-asset investment with fixed capital formation this way. There are several major differences between the two. For example, where fixed capital formation is concerned, dwellings are calculated on sales. Therefore, no matter whether a building is under construction or completed, whether it has obtained all its planned investment or not, as long as it is sold, it should be included into fixed capital formation.
Another difference between the two is what should be included. Small investments on real estate under 5 million yuan (US$765,500), cultivated biological resource, mineral exploration and valuation, and computer software are not included into fixed-asset investment, but in fixed capital formation.
Besides, it will take a long period of time to input large investments. Sometimes, a large investment can't be fully realized in one year. Therefore, in good years, there will be a large number of investments, and many projects will begin. However, if the projects are not sold out that year, they will not be calculated in GDP, and if they are sold out the next year, then that is when they will be included. Fixed capital formation in 2015 was higher than 2014. The main reason is that some inventories from the previous year in the real estate market were finally sold out.
