## **_10 How Fat Has Chine. lndwy Grow?_**

The data marked 'A," identified as based on 1980 prices, are much smaller than the figures marked "b," which appear initially without price attribution, but are also used to compile a total described as based on 1980 prices in a separate source (Agriculture 1988, p. 314 - this is a table of 1987 gross output for township and village industry by province "at 1980 prices"; although the line for Shanghai is blank, the national totals and data for other provinces are virtually identical with figures in TVP 1988, p. 26, which makes no mention of a price base].

Scattered data for several provinces imply improbable increases in labor productivity. GVIO for Tianjin's village enterprises reportedly increased by 81 percent between 1985 and 1987 even though employment rose by only eight percent [Tianjin 1988, p. 111]. In Liaoning, reported GVIO from township enterprises rose by 21 percent during 1986/87 despite a two percent decline in employment [Liaoning 1988, p. 508]. In Heiongjiang, township enterprises reported real output growth of 15 percent during 1986/87 while employment fell by one percent (Heilongjiang 1988, p. 291].

The impression of widespread substitution of current for constant price output figures is confirmed by Robert M. Field, who finds that 'a large and growing number of provinces have not distinguished output [of village-level industry] in current and constant prices. . . . in 1985 the output of village and below-village industry in current and constant prices were identi:al for all provinces [Field 1988, pp. 586-87, with emphasis added].

# **C. Has** the Rate of Double Counting Increased?

Measuring industrial output growth using information about changes in the gross value of industrial output can produce misleading results if changes in industrial organization alter the frequency with which materials, components, and services are exchanged among enterprises. Assuming no change in real output, a trend in the direction of vertical integration (e.g. merger of iron mines with steel plants) will cause measured output to decline (the sale of iron ore to the steel mill disappears from reported GVIO). A trend toward interenterprise division of labor, on the contrary, will cause measured output to increase.

There are two reasons why one might expect the use of GVIO data to artificially inflate measures of industrial output growth during the 1980s. First, industrial reform has created new opportunities for inter-enterprise specialization and division of labor. Chinese economists and planners have long criticized the excessive vertical integration typical of Chinese industrial operations. Despite ample evidence that integration raises production costs, managers have persisted in building daerguan (large and complete) or i (smaUl and complete) manufacturing establishments in order to limit their dependence on unreliable external suppliers. Economic reform has increased the availability and reliability of external suppliers for a wide variety of commodities and services. There are many reports of new sub-contracting an-angements, inter-provincial joint ventures and other institutional changes that point in the direction of an increase in the overall ratio of inter-enterprise transactions to real output within the industrial sector. [Note, however, the apparent counterexample of the Capital Iron and Steel Corporation, which has used new opportunities for independent decision-making to reduce its