The reform of China's gross domestic product (GDP) calculation and release system will definitely help the index better reflect economic realities, said an article in the Beijing-based magazine China Newsweek.

According to Li Deshui, director of the National Bureau of Statistics, the bureau is planning a major change in the country's calculation and release of its GDP figures.

One of the major indices measuring its economic performance, China's GDP always attracts special attention at both home and abroad, said the article.

Studies indicate that an annual GDP growth of at least 7 per cent could ease employment pressure brought about by the population increase and many other ensuing social problems.

The economic growth rate also has a major bearing on local officials' careers and promotion prospects.

Some experts held that the famous saying of Deng Xiaoping "development is the absolute principle'' has been distorted into "economic growth is the absolute principle,'' and now "GDP is everything,'' the article said.

Internationally, there is much speculation about the veracity of China's GDP figures.

US economist Thomas G. Rawski, at the end of 2001, doubted the authenticity of Chinese GDP statistics and predicted China's economy would collapse soon.

Recently, some Western researchers claimed that China's GDP growth in 2003 would exceed 10 per cent, far beyond China's official forecast of 8 per cent.

Why has China's GDP figure incurred so much doubt?

Li Deshui attributed it to the rigid system of China's GDP calculation and release, the article said.

Set up in 1985, the system includes multiple links of calculation, from forecast, initial calculation, initial checkup to final checkup.

But the system does not have any arrangement to correct or update the figures periodically.

As a result, the GDP figures are never changed once it is released.

The US Government announced the economy grew by 1.6 per cent in the first quarter of 2003, then it adjusted the number to 1.9 per cent 45 days later and it finalized the figure at 1.4 per cent 75 days after its initial release.

Comparing with the US mechanism of GDP growth figures, China's system appears to be less flexible, which makes it unable to adapt to the globally accepted practice.

An adjustment mechanism, therefore, will be established in the future, the article said.

Technically, more detailed and comprehensive information will be included in the calculation of the GDP, according to Xu Xianchun, a high-ranking bureau official. More information on the tertiary industry will be taken into account.

In reforming the system, another step the authorities will try to take is to include statistics on illegal economic activities, said the article into the GDP calculation.

Currently, the transaction value of illegal economic activities are not included in GDP.

But these activities do exist in reality and they may have a bearing on the calculation of the revenues of some related legal economic activities. Therefore, to better show the overall economic map, it is necessary to count in the illegal economic activities.

However, it is hard to collect all materials needed to estimate illegal economic activities.

The experience in Italy, the country doing best in this regard, could be used as a reference for China, said the article.

By counting the population, industrial distribution of the population, and the rough per capita value added of GDP from underground industries, the Italian authorities could get approximate statistics involving illegal economic activities.

Yang Fan, a researcher with the Institute of Economics under the Chinese Academy of Social Sciences, held that in China, it may not be easy for such efforts to bear fruit.

Yang defined those illegal economic activities related with abuse of power as "the grey economy,'' including bribery, corruption, embezzlement and trading administrative licenses for money.

In his view, this is the most significant part of illegal economic activities as it involves huge amounts of cash flow. But it is also the part the estimation of whose value is the most difficult.

According to Yang, there are also "the yellow economy,'' which means that part of economy related with illegal sex-related activities, and "the black economy,'' which means activities related with smuggling.

The amount involved in these two categories are both on the decline in terms of their proportion to the whole economy as the country has been tightening control over the crimes in those fields in recent years, the article quoted Yang as saying.

Yang urged the authorities to take into account the element of environment in calculating GDP.

The conventional GDP estimates do not consider the losses caused by environmental pollution and waste of natural resources.

According to a framework integrating the environment elements into economic calculation released by the World Bank, environmental damages should be deducted from GDP figures to reflect the real economic growth.

An environmentally adjusted GDP, or green GDP, will help improve the country's potential of sustainable growth in economic terms, Yang believed.

"If the fever of local governments to chase GDP growth regardless of everything else is not checked, China's economy would not maintain its growth in the long run,'' Yang said.

(China Daily December 5, 2003)