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China lowers 2014 GDP growth to 7.3 percent from 7.4 percent

Chinese workers put the finishing touches on soft toys at a factory before packing them for export. Photo: AFP/Getty Images

China's National Bureau of Statistics (NBS) on Monday revised down 2014 economic growth rate to 7.3 percent from a previously reported 7.4 percent.

The change is relatively small but suggests that China's effort to meet its official growth target of about 7.5 percent last year was tougher than it seemed.

The growth revision comes on the back of comments by China's Finance Minister Lou Jiwei over the weekend that GDP growth will remain around 7 percent in 2015, as predicted earlier in the year, and the new economic normal may last for four to five years.

"China revises growth data every year, but it's usually upwards. In that regard, it is unusual that the revision was downwards," said Dariusz Kowalczyk, senior economist and strategist at Credit Agricole.

"Rationally speaking, a 0.1 percent revision isn't a big deal - and it doesn't tell us much about the Chinese economy, but when it comes to sentiment, this is a negative development," he said.

China's GDP stood at 63.6 trillion yuan ($10.00 trillion) last year, down by 32.4 billion yuan from the initial estimate in January of this year, the NBS said in a statement on its website. The change amounted to less than 0.1 percent of China's overall economy. The agency said that the number could be revised one again when it releases final results in January 2016.

The main reason for the change was the service sector, which the agency said grew by 7.8 percent rather than 8.1 percent. China is trying to shift its economy from debt-fueled investment to consumption and services.

After the revision, the service sector accounted for 48.1 percent of GDP last year, down from the previously announced 48.2 percent, the bureau said.

The primary sector grew 4.1 percent last year, while growth of the secondary sector, which includes manufacturing and construction, rose 7.3 percent.

The manufacturing and construction sector accounted for 42.7 percent of GDP, while the farm sector accounted for 9.2 percent.

The world's second-largest economy grew 7 percent in the first half from a year earlier - in line with the government's target for 2015, but growth could weaken in the second half as momentum slows and the contribution from financial services falls off. Concern over China's economic growth has helped fuel a slump in global markets in recent weeks.

China's official services purchasing managers index has remained strong at readings above 53 this year even as the manufacturing counterpart has struggled. The manufacturing PMI dipped into contractionary territory in August with a reading of 49.7. A number above 50 indicates expansion, while a number below 50 represents contraction.

Boosting confidence

China has sought to reassure a domestic audience and global investors that its economy is solid and that it will improve as interest-rate cuts and stepped-up fiscal spending take effect.

In an assuring message to the market, China's top economic planner, the National Development and Reform Commission (NDRC), on Monday said that the world's second largest economy is stabilizing and turning for the better, citing stabilizing rail freight and a warming property market as proof for the improvement.

Since August, economic indicators such as power use, rail freight, home prices and transactions have all taken a favorable turn, showing economic operations stabilizing amid fluctuations, according to a statement on the website of the NDRC.

A recent report by Fitch Ratings on China's new normal said that "pessimism over China's short-term outlook is overdone and a growth pick-up in the second half is already in the pipeline."

Fitch, however, also expects more volatility around the new normal of slower growth, both in real economic activity and in financial markets.

Over the weekend, Zhou Xiaochuan, the head of China's central bank, said that the "correction in the stock market is almost done" and that China's currency is steadying after last month's devaluation.

On Sunday, the China Securities Regulatory Commission said that China's state-owned margin loan provider will continue to stabilize the market when drastic price fluctuations lead to systematic risks.

"This government is trying to boost confidence in both the economy and their ability to handle it," said Standard Chartered economist Ding Shuang.

Accurately tracking services is a challenge even for advanced countries given the number of family-owned companies, one-person operations and Internet ventures. The revision won't make it easier for China to reach its 2015 target, said Ding, given that the same collection method for services will be applied in both years.

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