The mainland relies on a 'regular reporting system', under which data is supplied by state-owned enterprises, industry regulators and local governments, rather than obtained from regular investigations.

Thus their quality is questionable, with local governments exaggerating growth to appear more progressive and companies lowering profits to evade taxes or inflating profits to meet the requirements for stock market listing.

The figures could also be fiddled to meet targets set in the central government's five-year development programmes, according to the report.

Wu Xiaoying, one of the co-authors, questioned the reliability of the mainland's 2004 economic census, following which the nation revised annual GDP growth from 1992 to 2004 up 0.5 percentage point to 9.9 per cent.

'Although the census found serious undervaluation of the service sector's output, the revision made after the census is not necessarily more reliable than previous figures,' Mr Wu writes in the report.

It was suspicious that after the census, the statistics bureau did not reveal why the aggregated regional GDP was always higher than the national figure, nor did it reveal industrial output inflation, which was widely believed by economists to be exaggerated, according to the author.

Mainland media reported last month that the combined GDP figures provided by local governments for the first half of last year were 1.24 trillion yuan higher than the national GDP figure released by the central government. Also, GDP growth rates reported by local governments had been about two percentage points higher than the national figure for six consecutive years.

'The economic census is the biggest endeavour China has made to improve statistics quality. Our research shows problems in traditional statistics mechanisms and political elements may restrict its effects,' Mr Wu writes.

Despite some economists' allegations that previous years' estimates of GDP growth have been exaggerated, the bank argues that the figures are more likely to be too low because the service sector's contribution was underestimated.

ADB economist Bishnu Dev Pant said Beijing should correct existing weaknesses in data collection for services and split enterprise accounts into separate units.

Also, the statistics bureau and the China Banking Regulatory Commission should jointly investigate illegal financial activities, which are playing a big role in the economy.

The report cited a Central University of Finance and Economics survey showing non-observed financial activities, including lending between individuals or corporate and underground banking, which are not counted in statistics, account for one-third of the mainland's financial activities.

The team conducted investigations in 27 provinces last year and interviewed companies about their sources of funding, residents about sources of loans and local financial institutions on their lending.

'China has very little information on the illegal activities. If they are not included in statistics, negative impacts will be big because they have such a big share of the economy,' Mr Pant said.