China's first national economic census has confirmed what many economists have long believed to be the case - the mainland's economy is much larger than previous figures suggested. The only surprise is that the census has found the economy to be just 16.7 per cent bigger, rather than even more.

The under-reporting was mainly attributed to growth of the services sector, which was not properly accounted for in the mainland's previous national accounts system. The census has found that services constituted 40.7 per cent of gross domestic product last year, up from 21.9 per cent previously. It is now estimated that the mainland's economic output in 2004 amounted to 15.99 trillion yuan, or US$284 billion. The mainland economy has now surpassed Italy to become the world's sixth largest.

For the central government, the availability of more accurate economic data has its pros and cons. On the one hand, it would provide a better basis for assessing economic and social trends and policy options. On the other, as the nation has been confirmed to be "wealthier", foreign pressure to further open its markets and change its currency policy will intensify.

A preliminary analysis of the revised data has revealed several positive features. With services accounting for four-tenths of GDP, the mainland's industrial structure is less skewed in favour of primary industries and manufacturing as previously thought. Domestic consumption is playing a much greater role in driving the economy, lessening the fear that it is too dependent on export-led growth. The economy's ability to create employment and efficiency in using energy are also found to have been better than previous estimates.

All these strengths of the mainland economy should give the central government more confidence in proceeding with reforms to further enhance its industrial structure, overhaul the tax regimes and boost social spending.

Indeed, the National Development and Reform Commission is taking action to stop encouraging investment at all costs, in favour of promoting environmentally friendly projects. The tax authorities should now be thinking about boosting their collection ability by extending the tax net in an equitable manner. Their objectives should be to capture additional sources of revenue as well as enhance the tax regime as a fiscal tool for managing an increasingly consumption-driven economy.

An ugly side of the nation's growing affluence is a widening wealth gap between the rich and the poor. As the national economy has become bigger, the government's social spending, already low by international standards, now appears even smaller as a percentage of GDP. The central and provincial governments should boost their budgets on education and health, which will be critical in helping the poor advance themselves and preventing the escalation of social discontent.

With or without the upward revision of GDP figures, there has been consistent foreign demand on the mainland to make the yuan freely convertible and further open up its markets. The more rosy economic figures will make it that much more difficult for the central government to fend off such pressure. What foreign governments need to realise is that the fundamentals of the mainland economy have not changed, despite the adjusted figures. On a per capita basis, the mainland is ranked 107 by the International Monetary Fund and 129 by the World Bank. It is quintessentially still a developing country.

The economic census has painted a better picture of the mainland economy. But the picture is still one of a struggling giant, not an affluent society.