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

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China is adjusting its accounting methods to improve accuracy and protect against data manipulation. Photo: EPA-EFE

Published: 10:00am, 15 May 2024

China revised its method for calculating the added value of the financial sector to improve the accuracy of gross domestic product statistics in the first quarter of this year – a change cited by many analysts as the proximate cause for April’s contraction in aggregate social financing, the first drop of its kind in almost two decades.

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.

“It showed that domestic demand remains weak, but is more affected by efforts to curb data manipulation in the financial sector.”

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.