**_How Fau Has ChintE Indistry Gro"?_** _7_

a variety of items within broad categories such as 'plastics." Furthermore, the calculations reported in Table 5 give identical weight to each of the nine products. On the other hand, the size of some of the annual differentials is troubling. Is it reasonable to anticipate that chemical output could rise in real terms by 11 or 12 percent during years in which average output growth of major commodities amounted to only 3.3 percent (1983/84) or even declined slightly (1984/85)? At the -ery least, these results suggest the possibility of upward bias in the value data for one of China's larger industrial branches. Figures for the machinery industry raise similar, though less serious, issues.

# B. Do Rural Industries Adhere to Standard Accounting Regulations?

The extraordinary growth of township, village, and 'TVE' enterprises noted in connection with Table 1 raises questions about the veracity of the underlying output reports. In principle each enterprise is expected to compile output values based on both current and constant prices As reform causes managers to focus increasing attention on enterprise financial performance enterprise leaders (and presumably accountants and statisticians as well) pay growing attention to current cash flows. Despite the complexity arising from sales of similar products at multiple prices, output valued at current prices is closely related to enterpnise sales revenue, and therefore appears to pose little conceptual or practical difficulty even for the inexperienced and unsophisticated accountants available to small rural enterprises.

To calculate gross output at fixed prices requires information about the fixed (1980) price o each item produced. Industrial ministries publish large compendia containing relevant price lists. Administrative units at all levels a,e responsible for passing on appropriate price information to enterprises under their jurisdiction. While this system has functioned smoothly for many years among large-scale enterprises in the staLe sector, the recent explosive growth of collective enterprise, especially in rural areas, raises the possibility that enterprises, their administrative superiors in township or county industrial bureaus, local statistical personnel, or all three group may have failed to implement the system of calculation in constant prices that is of crucial importance for industrial output statistics even though it is of little or no interest to enterprise personnel and perhaps to local government officials as well.

China's statistical rystem operates according to a vertical hierarchy in which each administrative level compiles and processes statistical reports received from its immediate subordinate in the bureaucratic structure. Thus national agencies receive material prepared by provincial agencies, which in turn rely on data compiled by municipal or county authorities, who base their reports on data from local enterprises. This means that statisticians at higher administrative levels cannot easily evaluate the quality of the raw data underlying the reports that arrive on their desks, particularly when, as in the case of rural industry, these reports come from literally thousands of widely dispersed units.

Under these conditions, it is entirely possible that data supposedly based on fixed 1990 prices could contain a substantial component based on (much higher) current prices. With inflation, substitution of current for constant prices imparts an upward bias to the resulting data. The view