Beijing’s official statistics office said today that a failure to account for China’s emerging services sector meant that its economic output last year was 16.8 per cent higher than previously reported.

The revised figures mean China overtook Italy as the world’s sixth largest economy in 2004. China would jump be fourth, trailing only the United States, Japan and Germany, and ahead of France and the United Kingdom, if its valuation also included Hong Kong, which is a Chinese territory but reports its economic figures separately.

"It’s almost the same as the UK’s economic size. For sure by 2006 China will become No 4 and by 2010 it will be more than Germany," said Chen Xingdong, an economist at BNP Paribas in Beijing.

British business leaders' reaction was to call on companies in the UK to see China's growth as an opportunity. "It has always been a matter of when, not if, the Chinese economy will eventually eclipse the UK's in size," Sir Digby Jones, director general of the CBI, said. "These figures for growth in 2004 highlight just how rapidly China is growing and what an amazing success story it is now becoming."

The Chinese output tally of nearly 16,000 billion yuan (£1,136 billion) followed a survey meant to gather more data on restaurants, retailers and other service businesses, which had been underreported.

The revision was welcomed by China’s official statisticians and western economists, who said the revision would help in analysing China’s economy. The revision could have an impact on economic and social policymaking as Beijing moves to create jobs and plans investment programmes.

"These new figures give us a clearer picture and a better way of understanding China’s economy," Li Deshui, the director of China’s National Bureau of Statistics, said.

"Based on these figures, we can have even more confidence in our long-term fairly fast and sustained economic growth."

However, the revised figures would not change China’s policy on the yuan, he added. The United States has consistently complained that China has kept its currency artificially cheap, helping Chinese exports and hurting their American rivals.

Mr Li added that Beijing will revise growth figures back to 1993.

Economists have suspected for some time that China’s official figures, which have indicated annual growth of above 9 per cent in recent years, have understated the size of its economy because they have focused on manufacturing and undercount services.

Other governments have reported similarly large jumps in output when they changed the way they measure their economies, including a 17 per cent increase for Indonesia in 2004 and 11 per cent for Norway in 1995.

A larger overall output would make China’s investment and growth rates smaller as a share of the economy, possibly easing fears that both are too high and could lead to inflation or financial problems.

The change should reassure policymakers and investors by making China look more like other countries, Steve Tsang, director of the Asian Studies Centre at Oxford University, told AFP.

"It would mean the economy’s ability to continue at the current rate of growth is better," Mr Tsang said. "To multinationals and other companies thinking of investing in China, that’s very important."

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive