There's no doubt that China is currently preoccupied with domestic politics ahead of its 19th party congress. But, as Stratfor's Fourth-Quarter forecast points out, China's long-term focus is really on preserving economic and social stability. Beijing's amendments to how it accounts for GDP show that, despite all the political fervor, China is still working toward its broader economic goals.
In the past, China has been criticized for the poor quality of its official economic statistics, but the country is on a quest to modernize and improve its economic data collection and calculation standards. For its Oct. 19 quarterly release of data — including gross domestic product — China's National Bureau of Statistics will once again adjust the way it handles research and development expenditures. Under the new methodology, the statistics bureau will include R&D expenditures after previously counting them as intermediate capital deductions.
The changes will boost China's GDP modestly, particularly in China's provinces, where research and development is concentrated, including in the coastal technology hub of Guangdong. China is certainly not the only country undertaking methodological changes to gain a better grasp on the actual health of its economy, but for Beijing the changes come at a sensitive political time, just ahead of the next party congress.
The congress will be a crucial indicator of Chinese President Xi Jinping's ability to consolidate power and will include important leadership changes. Xi has made economic restructuring and rebalancing a focus of his tenure, while working to boost R&D investment into high-technology sectors. From a purely economic standpoint, the changes to China's GDP methodology standards were needed. But they also happen to help Xi showcase the benefits of his economic strategy during a crucial political time.
Politics aside, Beijing's main reason for making changes to GDP is being able to reliably track China's economy. The Chinese government is working to balance the many different demands on the Chinese economy, and it needs accurate reporting to effectively strike that balance. Accurate statistics become even more important during times of reform, when economic change can happen quickly. After the party congress, China's leaders will turn with renewed vigor to reforming the economy. The party's newly instated officials, after all, will need to earn the public's confidence, and a key way of doing that will be working to rebalance China's stable, but weak, economy.