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Monday's unexpected decline in reported growth from 7.9 percent in the final quarter of 2012 was severe enough that economists responded by cutting their growth outlook for China this year. JP Morgan economist Hongbin Qu scaled back his forecast from 8.2 percent to a still-healthy 7.8 percent, while Kuijs and Qiu at RBS reduced theirs from 8.4 percent to 7.8 percent. Data showing rising bank loans and other credit, another key indicator, also might be inflated, according to Thornton. He said official figures might mistakenly count the same money two, three or more times as credit is extended from one company to another and then to a third. Government figures on home sales also might give a false picture of the strength of the housing market because they rely on seller-reported prices without independent measurement. Chinese economic growth figures are, like those of other countries, estimates that are often revised later. Unlike other countries, though, China's revisions can be huge. In 2009, Beijing raised its official 2007 growth rate from an already eye-popping 11.9 percent to 13 percent. That suggested its earlier estimate failed to take account of tens of billions of dollars in economic activity. Economists also note that even where Chinese data are reliable, they can be pumped up by investment or government spending that might do little for long-term prosperity. Chinese leaders are trying to nurture more self-sustaining growth based on domestic consumption rather than exports and investment. That will drag down the overall growth rate in the short run. The World Bank and other advisers have warned that to keep growth strong, Beijing needs to curb the dominance of state industry and encourage free-market competition
-- a factor that isn't reflected in the headline numbers. On Monday, China's surprise growth hiccup triggered selling in Western and Asian stock markets. The Dow ended at 14,648, a drop of 1.4 percent and the Standard & Poor's 500 slumped 1.9 percent to 1,559. Thornton noted that last week, global stocks rose after China's report of stronger March trade, even though analysts said the data probably were inaccurate and exports weaker than they appeared. "We all know markets are not particularly rational and overshoot or undershoot and wipe billions of dollars off market cap off indices over what we think is a misreading of various data points," he said.
[Associated
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