Over the past 35 years, China’s government-controlled economic model, and its method of measuring growth, have undergone several reforms. Starting with a system it inherited from the former Soviet Union, China transitioned to a GDP index system with international standards in the late 1970s. But since the 2008 world financial crisis, China’s GDP has become stimulus driven. This is unsustainable. We are beginning to see the fallout.
I graduated in 1981 in economics and became a teacher at the same university, teaching statistics. The statistics taught in China at that time were copied from the former USSR and were based on Marxist theory. It only acknowledged value of goods produced and was called Material Product System (MPS). It excluded tertiary industries.
Early Communist System Measured Gross Output
Back then, the United Nations specifically used this MPS system to release economic data from the USSR, Eastern Europe, China, and some other countries. Its core indicator was gross output. For example, if a business expended 70 yuan in materials (that is, raw materials, power, machine depreciation, etc.), 20 yuan in salary, and 10 yuan in profit, its output was 100 yuan.
The MPS indicator had two issues. One was the conceptual definition: Its total output was repeatedly counted. For example, the total output value of a coal mining enterprise was counted into the total output value of a machinery manufacturer that utilized the coal, whose total output value was counted into the total output value of a food company that used the machinery, whose total output value was again counted into the total output value of the enterprise selling the food, and so on.
