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New Estimates of Fixed Investment and Capital Stock for Chinese State Industry

Published online by Cambridge University Press:  17 February 2009


Measures of society's stock of fixed assets are necessary for describing production technology, evaluating capital-output ratios and analysing multi-factor productivity. Even in advanced industrial economies, existing series of fixed capital incorporate many weaknesses and arbitrary assumptions; in low-income nations, these problems are often severe. China is no exception. While recognizing the inherent difficulty of compiling capital stock estimates for an economy in which prices have long deviated from scarcity values, this article uses currently available materials to derive an improved time series of fixed capital stock for independent accounting units within Chinese state industry. Our objective is to produce new series that adhere as closely as possible to the standard national accounting concepts of gross domestic fixed capital formation and gross reproducible fixed assets. Despite the difficulties mentioned below, we believe that our new series are distinctly superior to existing figures for the analysis of capital deepening, multi-factor productivity and other aspects of Chinese state industry requiring estimates of fixed capital stock.

Research Article
Copyright © The China Quarterly 1988

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1. China's industrial sector includes mining, manufacturing and utilities. The state sector dominates Chinese industrial activity, accounting for 70·4% of 1985 industrial output value [Zhongguo tongji nianjian 1986 (China Statistical Yearbook; hereafter TJNJ 1986); Beijing: Zhongguo tongji chubanshe, 1986), p. 273].Google Scholar Within the state sector, independent accounting units (i.e. excluding railway repair yards, publishing houses operated by universities and other industrial operations subordinate to non-industrial units) predominate; they contributed 93·2% of 1979 state-sector industrial output [World Bank, China: Socialist Economic Development (Washington, D.C.: The World Bank, 1983), Vol. 2, pp. 127–28Google Scholar; see also TJNJ 1986, p. 357].Google Scholar

2. Zhiye, Wang (ed.), Jishi jinbu de pingjialilun yu shijian (Theory and Practice of Evaluating Technical Progress) (Beijing: Kexue jishu wenxian chubanshe, 1986), passim.Google Scholar

3. Rawski, Thomas G., “Strengths, weaknesses and challenges for policy in China's industry today” (unpub., 1980)Google Scholar; “Chinese management capabilities: industrial technology” (unpub., 1983)Google Scholar; and “Productivity change in Chinese industry: problems of measurement” (unpub., 1986)Google Scholar; World Bank, China: Socialist Economic Development, Vol. 2, pp. 115–16Google Scholar and China, Long-term Development Issues and Options (Baltimore: Johns Hopkins University Press, 1985), p. 111Google Scholar; Tidrick, Gene “Productivity growth and technological change in Chinese industry” (World Bank Staff Working Papers, No. 761, 1986).Google Scholar

4. Recent statistical publications combine the last two categories; state-sector investment outlays are reported in two components: “basic construction” and “renovation and miscellaneous” (see Table A2). Because we seek to obtain a capital stock series suitable for evaluating the efficiency of industrial production, rather than industrial investment, we retain the Chinese practice of excluding work in progress from the capital stock. Naughton, Barry, “The economy of the Cultural Revolution: military preparation, decentralization, and leaps forward” (unpub., 1987)Google Scholar, discusses recent increases in the volume of work in progress.

5. Note that Chinese statistical practice involves the application of annual depreciation rates to fixed assets valued at original cost.

6. The investment figures for 1981–85 include outlays financed with foreign funds [TJNJ 1986, p. 470].

7. Certain aspects of formulas (1) and (2) require clarification. It is possible that certain components of I(t), the annual value of newly-commissioned fixed assets, may be valued on the basis of budget figures rather than actual cost. Some sources [TJNJ 1986, p. 357Google Scholar; Liansheng, Guan et al. (eds.), Jiben jianshe jingji cidian (Dictionary of Basic Construction Economics) (Changchun: Jilin renmin chubanshe, 1986), p. 299]Google Scholar, indicate valuation at actual cost, but others [Zhaowen, Xu, Guding zichan touzi tongji (Fixed Asset Investment Statistics) (Beijing: Zhongguo tongji chubanshe, 1986), pp. 23, 26, 27, 99Google Scholar and Guding zichan touzi tongji jiaoxue cankaoshu (Fixed Asset Investment Statistics—Teaching Reference Book) (Beijing: Zhongguo tongji chubanshe, 1986), pp. 17, 41]Google Scholar note that budget figures are used to value the construction component of investment spending. Furthermore, published sources [e.g. TJNJ 1986, p. 357]Google Scholar do not include the deduction for scrapping shown in equation (2).

8. TJNJ 1986, p. 588.Google Scholar

9. We ignore the minor inconsistency that arises because published expenditure shares relate to annual investment spending (including work in progress), whereas the investment totals in Column (3) of Table Al are based on the annual value of newly-commissioned fixed assets, which excludes work in progress.

10. E.g., the 1985 share of equipment spending shown in Table Al is calculated as: 1985 share=0·202×O·479+0·422×O·521 =0·317.

11. On the category of “other expenses,” see Zhaowen, Xu, Fixed Asset Investment Statistics—Teaching Reference Book, p. 43Google Scholar and TJNJ 1986, p. 491.Google Scholar

12. One such source is wujiaju, Guojia, Zhonggong jiaotong jiage shouce (Price Handbook for Heavy Industry and Transport; 3 vols.) (Beijing: Zhongguo jingji chubanshe, 1986)Google Scholar, a restricted compilation that tabulates official ex-factory prices for thousands of commodities. Such data, together with similar compilations relating to earlier years, would facilitate analysis of industrial price trends.

13. Taylor, Jeffrey R., “China's price structure in international perspective” (unpub., 1986).Google Scholar

14. TJNJ 1986, p. 461Google Scholar; Zhongguo jianzhu nianjian (1984–1985) (China Construction Yearbook) (Beijing: Zhongguo jianzhu gongye chubanshe, 1985), passim.Google Scholar

15. Barry Naughton kindly provided information on this point: see Gongye jingji guanli congkan (Collected Articles on Industrial Economic Management), No. 7 (1981), p. 32Google Scholar and Jingji yanjiu cankao ziliao (Reference Materials on Economic Research), No. 50(1982), pp. 818.Google Scholar

16. Yuxin, Zheng and Kuan, Chen, “Woguo gongyeshengchanlü yanjiu yu dangqian jingji xingshi fenxi” (Research on Chinese Industrial Productivity and Analysis of Present Economic Circumstances) (unpub., 1987).Google Scholar

17. Minqiu, Jin, “Work hard to reduce the cost of new buildings,” Renmin ribao (People's Daily) 24 02 1980Google Scholar, reprinted in Jianzhu jingji yuanli yu tizhigaige (Principles of Construction Economics and System Reform) (Beijing: Zhongguo jianzhu gongye chubanshe, 1985), p. 117.Google Scholar

18. TJNJ 1986, pp. 448, 461.Google Scholar

19. China has used several sets of fixed prices: 1952 prices for 1949/57, 1957 prices for 1957/71, 1970 prices for 1971/81, and 1980 prices since 1981 [TJNJ 1986, p. 86].Google Scholar Calculation of output value for 1965 at constant 1957 prices, for example, involves the use of quantities for 1965 and price and wage figures for 1957 to construct a Laspeyres quantity index using the 1957 official prices of cement, lumber, steel, hardware, electricity, labour etc. as weights. This procedure is described in Xu, , Guding zichan touzi tongji jiaoxue cankaoshu, pp. 49ff.Google Scholar

20. TJNJ 1986, pp. 236, 279.Google Scholar

21. Field, Robert Michael, “Real capital formation in the People's Republic of China, 1952–73,”Google Scholar and Rawski, Thomas G., “China's industrial performance, 1949–1983,” in Eckstein, Alexander (ed.), Quantitative Measures of China's Economic Output (Ann Arbor: University of Michigan Press, 1980)Google Scholar; Zheng, and Chen, , “Research on Chinese industrial productivity.”Google Scholar

22. Data for housing construction indicate average unit cost of 56·9 yuan per square metre during 1953–57, the same as the 1957 figure shown above [Zhongguo shehui tongji ziliao (Statistical Materials on Chinese Society) (Beijing: Zhongguo tongji chubanshe, 1985), pp. 101102]Google Scholar; we therefore ignore possible changes in construction costs during 1952/57.

23. Kuznets, Simon, “Quantitative aspects of the economic growth of nations: v. capital formation proportions: international comparisons for recent years,” Economic Development and Cultural Change, Vol. 8, No. 4 (1960), Pt 2, p. 33CrossRefGoogle Scholar; Modern Economic Growth: Rate, Structure and Spread (New Haven: Yale University Press, 1966), pp. 252–54Google Scholar; and “A comparative appraisal,” in Bergson, Abram and Kuznets, Simon (eds.), Economic Trends in the Soviet Union (Cambridge, Mass.: Harvard University Press, 1963), p. 353CrossRefGoogle Scholar; Emi, Koichi, “Capital formation and capital stock,” in Ohkawa, Kazushi and Shinohara, Miyohei (eds.), Patterns of Japanese Economic Development: A Quantitative Appraisal (New Haven: Yale University Press, 1979), p. 183.Google Scholar

24. Figures for the share of imports in industrial equipment are crude guesses based, for 1952–57 and 1970–73, on the estimated ratio of the yuan value of machinery imports to the value of all machinery and equipment delivered to construction sites [Field, “Real capital formation,” p. 233] and, for the 1980s, on incomplete information about the dollar value of China's machinery imports (including aircraft and other non-industrial categories) and the yuan value of industrial equipment production [1984 Almanac of China's Foreign Economic Relations and Trade (Hong Kong: China Resources Trade Consultancy 1984, p. 831Google Scholar and TJNJ 1986, p. 277].Google Scholar Any attempt to calculate this ratio must confront difficult problems of exchange rate conversion and domestic pricing of imported equipment. The official exchange rate (Chinese yuan per U.S. dollar), was approximately 2·36 in 1955, 2·62 in 1965, 1·83 in 1977, 1·97 in 1983 and 2·94 in 1985 [see Eckstein, Alexander, Communist China's Economic Growth and Foreign Trade: Implications for U.S. Policy (New York: McGraw-Hill, 1966), p. 294Google Scholar; World Bank, China: Socialist Economic Development, Vol. 2, p. viGoogle Scholar; 1984 Almanac of China's Foreign Economic Relations and Trade, p. 807Google Scholar and TJNJ 1986, p. 580].Google Scholar

25. A subsequent finding that equipment prices increased after 1957, rather than experiencing the mild downtrend shown in Column 2 of Table A2, would accentuate our conclusion (Table A7) that the volume of industrial fixed investment and capital stock grew more slowly than the unrevised totals shown in Table Al.

26. The 25% figure is based on citations contained in materials provided by Barry Naughton.

27. Since industrial employers rarely provided housing for their workers prior to 1949, we assume that the 1952 fixed asset totals reported for state-sector industry include few or no residential structures.

28. Note that lack of data prevents us from deducting the value of scrapped assets, which is thought to be small.

29. Perkins, Dwight H., “Issues in the estimation of China's national product,”Google Scholar in Eckstein, (ed.), Quantitative Measures.Google Scholar

30. Industrial investment spending for “basic construction” and “renovation” rose from 38 to 93 billion yuan between 1981 and 1985, with the average annual growth of current spending topping 20% [TJNJ 1986, pp. 452, 470].Google Scholar Another reason for the slow growth of completed investments is that the ratio of newly-commissioned fixed assets to annual investment outlay has fallen in recent years [TJNJ 1986, p. 461], indicating a gradual rise in the volume of work in progress, both in absolute terms and relative to annual investment spending.