Governments across the globe use a mix of different methods to analyze economic trends, growth and earmarking of funds.
China, like rest of the world, also takes help of various tools to understand and plan the nation's economic policies. But one framework that stands out in China is the Li Keqiang Index.
When Li Keqiang, the current prime minister, was Provincial Committee Secretary in Liaoning from 2004 to 2007 he began focusing on markers that were closely tied to country's growth, such as consumption of electricity by manufacturers, volume of goods carried by railways, and balance sheets of financial institutions.
By combining these indicators with common indexes and methods, he came up with a completely different tool. Britain's weekly newspaper termed it the Li Keqiang Index in 2010.
His framework immediately won praise from world's research institutions, who said that the index gives a much better picture of the economic trends, supports historical data and shines an impartial light on the nation's economy.
Although the Chinese economy has come a long way since 2010 and is projected to continue on its path to a new development stage, the basic principles behind the index remain unchanged as it still retains strong practical value, according to a commentary on London Post website.
To attest why the index will stand the test of fast-developing China, the website lists some of the reasons:
The contribution of country's primary sector (farming, forestry and fishing) is small and falling while the secondary sector (manufacturing) continues to drive the economic engine. Its contribution was 50.9 percent between 1990 and 2010, 15.1 percent higher than that of the tertiary sector. On average, the manufacturing contributed 5.2 percent to economic growth, 1.5 percent higher than that of the tertiary sector, said the Post.
Since it's the factories, the plants and manufacturing hubs that consume most electricity, power consumption is closely related to the pace of economic development.
China produces most of its natural resources, such as coal and mineral, mainly in the central and western areas and processes them in eastern areas. This means railways play a major part in transporting the goods and keeping the economic engine running.
But it's not just production and railways that are closely tied to growth. Capital investment is another important wheel. This is why loans and financial institutions provide a much better picture of economic trend, according to the Post.
"Based on the interpretation of data available, it is safe to say "Li Keqiang" index is well matched with the signs and level of economic growth. The so-called "matching" mainly refers to basic consistency of trend in data change in highly related indicators, and does not involve synchronous and equidistant change in data," said the London Post commentary.
"Through comparison of indicators contained in "Li Keqiang Index" with GDP and industrial growth rate from 2003 to the first quarter of 2015, we can easily see that such indicators change in the same direction, that operation trends of such indicators are basically consistent and data are basically matched and that fluctuation of three indicators contained in "Li Keqiang Index" is larger than that of GDP and industrial growth rate.
"Between 2013 and the first quarter of 2015, average of GDP growth rate is 9.8 percent and fluctuation range1 is 7.2 percent; while average industrial growth rate is 13.3 percent and fluctuation range is 12.1 percent. Average growth rate of industrial power consumption volume, railway freight volume and medium and long-term loan balance is 9.5 percent, 4.2 percent and 20.7 percent respectively and corresponding fluctuation range reaches 16.6 percent, 20.4 percent and 34.5 percent respectively again," it added.
As China's economy undergoes shifts, its service sector will start playing a much bigger role in country's economic growth, claimed the Post.
It said that in 2012, 2013 and 2014, growth rate of the service sector was 0.4 percent, 0.7 percent and 1.1 percent higher than that of secondary sector. In the first quarter of 2015, this rate has even soared to 1.5 percent. In 2013, proportion of added value of the service industry in GDP was 46.9 percent, exceeding, for the first time, that of the secondary sector. That rate continuously increased to 48.2 percent in 2014 and to 51.6 percent in the first quarter of 2015.
This shows that the country's manufacturing base is witnessing major changes and that the "service industry has become the biggest industry of the economy as a whole." The rise of service sector also means that demand for railway freight will come down as services don't generate as much need for transportation of goods as manufacturing.
Another sector that is causing some major changes is the hi-tech industry. According to the Post, the growth rate of hi-tech industries was continuously higher than that of six major high energy-consuming industries, 1.7 percent and 4.8 percent higher in 2013 and 2014 respectively.
"In the first quarter of this year, the rate went up to 5.1 percent. Proportion of added value of hi-tech industries in total industrial added value soared to 11 percent in the first quarter of 2015 from 8.9 percent in 2011, a 2.1 percent increase, while proportion of added value of six major high energy-consuming industries decreased by 2.2 percent during the same period," it said.
With the Chinese government moving away from coal consumption to clean energy, the proportion of black gold in the energy sector will continue to fall.
"Statistics show that proportion of raw coal in the energy sector gradually went down from 77.8 percent in 2011 to 73.2 percent in 2014, a 4.6 percent decrease," according to the Post. As far as consumption is concerned, it fell from 70.2 percent in 2011 to 66.0 percent in 2014, a decrease of 3.8 percent, said the website.
This means the freight business of railways will be impacted negatively. The proportion of railway freight volume in the whole freight business fell to less than 10 percent since 2012, a mere 9.2 percent in the first quarter of 2015, said Post.
Nothing illustrates the relevance and importance of Li Keqiang Index than its comparisons with major economic indicators.
When growth fell from 7.7 percent in 2013 to 7.4 percent in 2014, industrial power consumption volume also declined from 7.0% to 3.7 percent. When the growth rate was 0.3 percent lower in 2014 than that of 2013, the railway freight volume fell from 1.6 percent in 2013 to minus 3.9 percent in 2014.
"Direction and trend of change in those two areas are basically consistent," said London Post. Similarly, growth rate in medium and long-term loan balance is over 10 percent, which is well matched with the economic growth rate, it added.
The index remains an important benchmark to study and analyze economic trends and it retains its crucial reference value, according to the website.
"With further development of economy, quantitative relationship will probably undergo further changes. This tells us that we shall fully and accurately understand "Li Keqiang Index" in the light of the development achieved, especially at the time of analyzing China as a complicated and huge economy during the period of transformation and development," said London Post.
