The Overview of GDP Estimates
and Related Issues in China
Discussant comments
Session: Recent Developments in the NBS (I)
Tuesday, December 1, 2009
Kim Zieschang
IMF Statistics Department
The 13th OECD-NBS Workshop on National Accounts
Haikou, China
November 30-December 4, 2009
The views herein are those of the author and should not be
attributed to the IMF, its Executive board, or its management
Institutional units versus
activity units

NBS question 1: How can data on
activity units be collected if sources
provide information only on institutional
units (i.e., enterprises rather than
establishments)

Sample surveys of enterprises identifying
the establishments they own?

December 1, 2009
Single physical location, producing one or a few
types of output
Discussion: Overview of GDP Estimates and
Related Issues in China
2
Owner occupied housing
services output

NBS question 2: How should
depreciation be calculated for owner
occupied housing?



Output is the aggregate depreciation of
the owner occupied housing stock
Volume of output proportional to area of
dwellings
Price index proportional to depreciation
per unit area of dwellings
December 1, 2009
Discussion: Overview of GDP Estimates and
Related Issues in China
3
Owner occupied housing
services output

Restatement: How should rentals be
calculated for owner occupied
housing? Two approaches


Rental equivalence
User cost of capital
December 1, 2009
Discussion: Overview of GDP Estimates and
Related Issues in China
4
Owner occupied housing
services output

Rental equivalence


Equivalent rents for types of owner
occupied units my be hard to find in a
given market area, so, alternatively use
User cost of capital



Depreciation
Plus interest cost of invested funds
Minus expected appreciation in the prices
of owner occupied dwellings
December 1, 2009
Discussion: Overview of GDP Estimates and
Related Issues in China
5
Owner occupied housing
services output

User cost of capital, continued

If the user cost method is followed, using only
depreciation is equivalent to saying that the
interest cost of invested funds less expected
appreciation (the real interest rate) is zero



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December 1, 2009
Overstates current price output level if real interest rate
is negative
Understates current price output level if real interest
rate is positive
Overstates current price output growth if real interest
rate is falling
Understates current price output growth if real interest
rate is rising
Discussion: Overview of GDP Estimates and
Related Issues in China
6
Owner occupied housing
services output


These are primarily housing price rather than
volume effects
Output volume growth is fundamentally the
weighted average increase in the aggregate area
(size) of the housing stock, controlling for the mix of
types of unit



It is important that housing stratified by type of unit
Weighting of growth in certain types of housing is
important to the accuracy of the estimate of total volume
growth in owner occupied housing services
The rental estimate is important to these weights whether
by equivalent rent or user cost
December 1, 2009
Discussion: Overview of GDP Estimates and
Related Issues in China
7
Real estate development

NBS question 3: Financial statements
of real estate development companies
do not strictly reference activity from
the current period, but also include
activity from past periods


Have I got the problem correctly stated?
Further explanation of the problem with
the data?
December 1, 2009
Discussion: Overview of GDP Estimates and
Related Issues in China
8
Some further observations:
FISIM output at current prices

NBS approach to financial intermediation
services indirectly measured (FISIM)



Loans:
loan interest receivable – reference rate 
annual average value of loans
Deposits:
reference rate  annual average value of
deposits – deposit interest payable
Reference rate = (deposit rate + loan rate – risk
premium)/2
December 1, 2009
Discussion: Overview of GDP Estimates and
Related Issues in China
9
Some further observations:
FISIM output at current prices

Comment

Reasonable approach which allows the average term
structure of loans relative to deposits to affect the
allocation of FISIM between loans and deposits


Loan rate minus risk premium differs from deposit rate
because of difference in maturity of loans versus maturity or
duration of deposits, among other things
The risk premium stays in FISIM as compensation for risk
bearing


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December 1, 2009
Most of the risk bearing charge probably covers the
equivalent value of insurance against term and loan default
risk
The rest of the risk bearing charge is paid to the
stockholders for bearing risk as a primary input service
The amount of the risk premium to be included in FISIM is
currently under discussion in the ISWGNA as part of the
2008 SNA Research Agenda
Discussion: Overview of GDP Estimates and
Related Issues in China
10
Some further observations:
FISIM output at current prices
NBS loan FISIM
 Loan rate  Reference rate  Loans
 Loan rate  Deposit rate  Loan rate  Risk premium  / 2 Loans
 (Governmen t) Bond rate (same maturity)  Risk premium 
 Deposit rate  Bond rate  Risk premium  Risk premium  / 2 Loans
 Bond rate  Risk premium  Deposit rate  Bond rate  / 2 Loans
 Bond rate  Risk premium  Reference rate  Loans
… so NBS loan FISIM fully reflects the risk premium because the
reference rate is effectively risk free. Paragraph 6.166 of the 2008 SNA is
somewhat ambiguous about whether risk is in or out of the reference rate.
The 2008 SNA Research Agenda will aim to clarify this.
December 1, 2009
Discussion: Overview of GDP Estimates and
Related Issues in China
11
Some further observations:
FISIM output at current prices

Questions


How is the loan risk premium estimated?
Should FISIM for loans be calculated on
the market or fair value of loans rather
than the contract value (which is the
SNA’s valuation of loans on the balance
sheet)
December 1, 2009
Discussion: Overview of GDP Estimates and
Related Issues in China
12
Some further observations:
FISIM output price and volume

NBS FISIM price index: the unweighted
average of the interest rate index for
deposits maturing in 1 year and the interest
rate index for loans maturing in 1 year


A “reference rate” index?
Weight of FISIM in NBS estimate of total
financial services output is proportional to
net interest receivable
December 1, 2009
Discussion: Overview of GDP Estimates and
Related Issues in China
13
Some further observations:
FISIM output price and volume

Question: is this consistent with the current price
value of FISIM?


Could average of index of the reference rate minus the
deposit rate and index of the loan rate minus the reference
rate be used instead of the average of indices of deposit
and loan interest rates?
Could the weight of FISIM be FISIM rather than net
interest receivable?


FISIM is close to net interest receivable on loans and
deposits if total loans are close to total deposits, but the
difference increases with total loans minus total deposits
Could interest rates and FISIM calculations for more
maturities than one year be considered?
December 1, 2009
Discussion: Overview of GDP Estimates and
Related Issues in China
14
Some further observations:
FISIM output price and volume

Question: Should the FISIM deflator not only
depend on interest rates but also include
either

Average deposit size and average loan size?


Implication: output is a weighted average of the
number of deposit accounts and number of loan
accounts
Or, a general price index, such as the
consumption and capital formation deflator used
for “other financial services?”
December 1, 2009
Discussion: Overview of GDP Estimates and
Related Issues in China
15
Some further observations:
FISIM output price and volume
FISIM Laspeyres price index
 FISIM deposits t 1   Reference rate t  Deposit rate t  t 1,t
  PDeposit


t 1  
t 1
t 1 
 Total FISIM
  Reference rate  Deposit rate 
 FISIM loans t 1   Loan rate t  Reference rate t  t 1,t
  PLoan


t 1  
t 1
t 1 
 Total FISIM   Loan rate  Reference rate 
t 1,t
where PDeposit
is the average deposit size or a general price index
t 1,t
and PLoan
is the average loan size (fair valu e) or a general price index.
Other price indices besides Laspeyres could be used : Fisher ideal or Tornqvist
preferably .
December 1, 2009
Discussion: Overview of GDP Estimates and
Related Issues in China
16
In closing

Thank you for the opportunity to learn
about China’s national accounts and to
offer some approaches to the
methodological and data problems
NBS faces in compiling them
December 1, 2009
Discussion: Overview of GDP Estimates and
Related Issues in China
17