Download 1. The Economic Indicator System Framework in China

Statistics, Knowledge and Policy
OECD World Forum on Key Indicators
Palermo, 10-13 November 2004
CHINA’S ECONOMIC INDICATOR SYSTEM AND
GOVERNMENT AUDITING
MR LI JINHUA, AUDITOR GENERAL OF CHINA
1.
The Economic Indicator System Framework in China
A large number of economic indicators are used in China, each year several thousand statistical indicators
are published in the “China Statistical Annual Book” alone. Countries in the world are yet to establish a
universally accepted macro-economic indicators system to assess the macro economic development.
Based on its years of exploration and by referring to experiences of other countries, China has defined
promoting the growth of the economy, increasing employment, stabilizing the price and keeping
international balance of payment as its main objectives of macro control.
The growth of economy is a major indicator in measuring the development of the economy and is a broad
and comprehensive concept reflecting the growth of the national strength and the improvement of the
people’s living standard. For these reasons, nearly all countries have made growth of economy a primary
objective of macro control.
The Gross Domestic Product (GDP) and the rate of GDP increase are the most widely used indicators for
assessing the growth of economy. GDP is the monetary value of all goods and services produced by an
economy over a specified period. It is the gross value of wealth created in the given period including both
the tangibles and the intangibles. GDP is a summarizing measurement of the overall performance of an
economy and is internationally comparable. It is also the most important gross value indicator in the
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United Nations System of National Accounts (SNA) and is extensively used in all economies as a basis
for international comparison.
As an important indicator for macro economic assessment, GDP still has its limitations and is far from a
panacea. There are some factors this indicator can not reflect such as the social costs; the means of
economic growth and the price for the growth achieved; the efficiency, value for money and the quality of
the economic growth; and the gross accumulation of the social wealth, nor by which the social
distribution and social justice can be assessed. If our attention is only paid to the gross economic value
and the rate of economic growth and not to the loss of resources, environmental pollution, biological
destruction, we may very likely face a situation where the economy keeps growing yet the quality of
people’s livelihood becoming less satisfactory, or even worse, the economy does grow at all. Therefore
we should take a more scientific attitude toward GDP. Its importance should be highly valued on the one
hand, and on the other hand we should never be engaged in one- sided pursuit of a high GDP growth rate.
Other important indicators in China besides GDP include “Registered Urban Unemployment Rate”,
“Residents Consumption Price Index”, “Fixed Assets Investment”, “Total Volume of Social Consumption
Goods Sales”, “Industry Increase Value”, “Residents Income” and “International Balance of Payment” et
al.
2.The Role of Government Audit in Promoting the Objectivity, Accuracy and Effectiveness of the
Economic Indicators
Unlike the statistical institutions, government audit institutions are not directly involved and cannot
intervene in the compilation of the economic indicators. In practice however, government auditing has a
unique role to play in promoting the objectivity and effectiveness of these indicators.
1. Audit institutions’ role in finding and disclosing the untruthful factors while the indicators are
compiled
Budget making and implementation are closely linked with the national economic indicators. While the
level of social economic development serves as the basis for budget making, the budget also to a large
degree influences the national economic indicators. For years, SAI of China carried out budget
implementation audit following the principle of ensuring truthfulness and has put forward many
recommendations regarding regulating bank accounts of budget units, further increasing the details of the
departmental budgets, ensuring the completeness and accuracy of the fiscal budget and reforming the
special transfer payment system and insisted the implementation of the recommendations, greatly
promoting the reform of the national fiscal system with the degree of budgetary completeness and
transparency kept turning for better. Enterprises are cells of the economic life and the truthfulness of their
accounts, the quality and performance of their operation directly affects the quality of bank assets as well
as the performance of major national economic indicators. Since 1999, the National Audit Office of China
(CNAO) directly organized and participated in auditing of over 2 000 enterprises including some super
large scale state owned enterprises (SOEs). About one month ago, we published the fourth Audit
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Announcement of this year disclosing in details audit findings regarding the taxation payment situation of
over 788 enterprises. By revealing problems such as loss of tax revenues and practices of accounts
falsification, the report served indeed as a warning about the credibility and accuracy some national
economic indicators and has received great attention from the State Council and other relevant
departments.
2. The SAI’s role in brining to the attention of the government departments any findings of
uncoordinated factors in the development of the national economy
China’s government audit system was re-introduced and enjoyed fast development in the course of the
reform and opening up in China witnessing the changes of China’s economy taken place in the past 20
years. In China’s transition from a planned to a market economic system, its economy faces many
challenges and some uncoordinated factors. The CNAO while centering around the core task of
government reform and development, paid much attention to exploring and studying those problems of
universal and tendency features from the unique perspective of auditing and has provided much useful
information to the government as the basis for decision making. For example, excessive use of arable land
in China has become an evident problem in recent years, which if not properly controlled will directly
lead to many social problems. Moreover over heated growth of fixed assets investment as the result of
uncontrolled use of land may bring about the problem of sharp decrease of grain. In a country like China
with a population of 1.3 billion shortage of food may lead to disastrous results if left unsolved. As early
as two years ago, CNAO became aware of these dangerous signals with its keen insight and conducted a
special investigation on the land issue and submitted a report to the State Council. This report later was
seen as the beginning of a round of large-scale rectification of land using control in China. Other views
and comments raised by the CNAO have also received high attention from the National People’s
Congress (NPC, China’s parliament) and government. These include for example, recommendations by
CNAO based on special investigations on the financial condition of 49 counties in the western and middle
regions of China and on social security funds from the perspectives of guarding against financial risks and
promoting a coordinated development of social-economic development.
3. Audit institution’s role in disclosing problems regarding the quality of the economy
Statistics show that wealth achieved at the price of excessive consumption of resources and destruction of
the environment now accounts for 12% of China’s net GDP. This means that China’s economic growth
mode is still an extensive one featuring high input, high consumption, high growth and low efficiency.
For a country like China with a huge population and low per capita resource level, this fast growth will
not last long. In recent years, China practiced a expanding fiscal policy, the massive economic
expenditures successfully fuelled great power to the economic development, yet the system itself faces
such problems in terms of funds management and utilization to which the CNAO has attached due
attention. In the past 5 years since 1999, we followed and audited the utilization of public debt funds and
public works funded by public debts. Irregularities such as losses and wastes, embezzlement of public
debt funds and low performance of public debt funds were detected and dealt with, as a result funds
management was improved and safety and value for money of funds was better safeguarded. At present,
the government of China has gained an increasingly thorough understanding about the GDP measuring
system and has put forward an objective of establishing a scientific development concept, realizing a
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sustainable development. China has started a pilot green GDP system where resource consumption costs
and environmental losses will be gradually deducted from the current GDP level. This reform will have a
deep influence on government auditing, especially the contents and standards of Value for Money
auditing, moreover, our environmental audit and accountability audit work will include new contents and
will be further strengthened. Furthermore, the banking industry as a barometer reflecting the level and
quality of the national economy has always been a center of attention of China’s SAI. Every year, some
important banking institutions are audited for the purpose of improving management and preventing
operational risks of the auditees. This year we are auditing China’s four major assets management
companies with the total volume of assets under their control amounting to 1 400 billion Yuan (US$169.7
billion).
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