China's economic prowess climbs fast: China is rapidly climbing the world economic league, with the latest revision of its GDP growth underlining its rising importance.

• Position: Economic forecasting

Few market observers registered surprise over the recent announcement that China's economy as measured by GDP was 16.8 percent larger than previously reported for 2004. The disclosure, which follows the results of a national economic census, has simply served to confirm the widely held view that China's economy has been expanding at a faster rate than previously stated. The figures for China's real GDP growth between 1992 and 2004 have now been revised upward by an average of 0.5 percentage points per year. The new data not only reveal a more balanced economy with a fast-growing service sector, but also highlight the importance of a robust national account statistics system that can keep pace with economic reform to facilitate policy decisions.

Implications for the Domestic Economy

China's first national economic census has shed new light on its economy. The new set of data has shown China's growth to be greater than previously indicated, further strengthening its position as the world's fastest growing large economy over the past 25 years.

The new figures also suggest that the country has a better economic structure than that suggested by earlier data. Before the latest GDP revision, the contribution of services to total GDP in China was among the lowest in the world. However, the census results reveal a better economic balance: the service sector's share of GDP in 2004 has now been revised upward from 31.9 percent to 40.7 percent, against the 46.2 percent contributed by secondary industry. In fact, nearly all the value added to GDP arose from the service sector, illustrating the rapid and previously underreported growth of tertiary industry during the past decade, particularly in the coastal provinces and municipalities.

Second, while expenditure based GDP numbers have yet to be released, it is believed that the upward revision will mostly be accounted for by private consumption of services. As a result, fixed capital formation's share of GDP is very likely to be revised downwards from 44 percent to around 38 percent. Before the revision, this figure had already exceeded the levels reached by Thailand and South Korea just before the Asian financial crisis, much to the concern of many analysts. This latest adjustment may not mitigate all over-investment worries, but it shows that growth in fixed asset investment is better supported by growth in the underlying economy than was previously believed.

This new economic picture should also help...