BEIJING – In what analysts say is yet another sign of fragility in the world’s second largest economy, the Chinese government announced on Monday that it is lowering last year’s GDP growth figure to 7.3 percent from 7.4 percent.
The National Bureau of Statistics said the lower number reflects an adjustment in the 2014 growth of the services sector by 0.3 percentage points to 7.8 percent, which caused a slight decline in 2014’s overall economic growth rate.
While economists say it is common for governments to adjust economic figures, the fact that the adjustment was made in China, and in particular that it was a lowering of an already published figure, is notable.
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“What is unique is that this is happening in China,” said Christopher Balding, an associate professor of finance and economics at Beijing University’s HSBC Business School’s Shenzhen campus. “Could mean they are worried about how growth will turn out this year or are prepping the world for more future downward revisions. It probably does indicate we should definitely keep an eye going forward on how they handle this.
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“It probably does indicate a little more weakness than what they are letting on,” Balding added. “My sense is the economy is much weaker than what official statistics say.”
China’s GDP growth for the first and second quarters of 2015 was at 7 percent, in line with the full-year target of “around 7 percent.”
Also on Monday, China’s economic planning body, the National Development and Reform Commission, announced on its website that electricity consumption, rail freight and real estate transactions had improved in August. The NDRC said the data shows that “fluctuations in the economy have stabilized” and that “the economy is expected to continue to maintain steady growth and achieve its annual economic growth target.”
Yet, the country’s official manufacturing purchasing managers’ index, or PMI, dropped 0.3 points to 49.7 percent in August, the lowest point seen in the index since August 2012. A PMI below the 50 mark separates expansion from contraction.
Other moves by Beijing, including a depreciation of the yuan to, in part, boost exports, which were down 8 percent in July from a year earlier, have fueled fears the Chinese economy may be on the verge of a sharp downturn.
Economists say the adjustments to the service sector growth rate in 2014 reflect weakness in the financial services sector, which has and will continue to take a major hit against the backdrop of ongoing stock market volatility. Beijing has pumped trillions of yuan into Chinese markets, which have been on a downward spiral since the beginning of the summer.
Balding explained that the adjustment to last year’s GDP figures could indicate that Beijing is trying to make financial services factor in less when measuring economic expansion, a preemptive measure to fend off even slower growth this year as that industry faces potential collapse.
“The crash in the financial services sector will come in the second half of this year,” he said. “Many will report losses. [The adjustment] will balance out financial services’ contribution to total GDP. It will lower the impact when the boom is over.”
Oliver Rui, a professor of finance and accounting at the China Europe International Business School’s Shanghai campus, said he believes the adjustment to last year’s GDP growth means “the round of corrections are not over yet” and that more stimulus measures are likely in store.
In August, China’s central bank, the People’s Bank of China, cut interest rates to free up more cash for lending. The PBoC also lessened the amount of reserves that banks must hold.
For retailers, the continued release of dour economic news raises questions about consumer confidence. China’s leadership has made economic reform, in form of shifting an economy based on cheap manufacturing, exports and infrastructure build to growth supported by a strong services sector and consumer spending a top priority. They’ve also shied away from relying on government stimulus to prop up the economy as was done to fend off the 2008 global financial crisis.
Data released in July indicates consumer confidence is being rocked, at least moderately, by fears of an economic downturn. China’s statistics bureau said consumer confidence decreased to 104.48 in July from 105.54 in June.
“There is some concern over the slowdown, the bottom line is most consumers are still continuing to spend,” said Benjamin Cavender, a senior analyst with the Shanghai-based China Market Research Group. “However, consumers are becoming choosier about how they spend, and it means brands are going to have to become more strategic about how they position their products and how they market them to better fit consumer needs.”