Wall Street cut China’s GDP forecast many times this year. One bank adjusted 6 times

BEIJING — International investment firms have changed their Chinese GDP forecasts nearly every month so far this year, with JPMorgan making six adjustments since January.

That’s according to CNBC’s analysis of the companies’ ratings. JPMorgan did not immediately respond to a request for comment.

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The US investment bank recently cut its forecast for China’s GDP to 5% in July from 5.5% previously.

That was accompanied by cuts this month by Citi and Morgan Stanley to 5%.

The average forecast among the six companies surveyed by CNBC now stands at 5.1%, close to the “around 5%” target announced by Beijing in March.

Citi’s latest guidance marks the company’s fourth change this year. Morgan Stanley has adjusted its guidance only once since it was set in January.

During the same period, Nomura changed its forecast four times, while UBS adjusted it three times and Goldman Sachs changed its forecast twice.

Investment banks mostly revised their forecasts upward earlier this year after China’s initial rebound from three years of tight Covid controls.

The latest cuts come amid recent economic data pointing to slower-than-expected growth, and authorities showing reluctance to embark on large-scale stimulus. Second quarter GDP grew 6.3% a year ago, missing the 7.3% growth that analysts polled by Reuters had predicted.

The disappointment in second-quarter GDP growth, however, is due to official revisions to China’s quarterly growth last year, according to Rhodium Group’s Logan Wright and a team.

The resulting weak figure helps Beijing make the case for supporting the economy, analysts said in a July 17 report. “Understand what you see in this year’s GDP data: these are artificially constructed narratives for various audiences, not reports on China’s economic performance.

The National Bureau of Statistics did not immediately respond to CNBC’s request for comment.

Instead of releasing multiple data readings, the bureau releases quarterly GDP relatively soon after the end of the period and then releases revisions.

The statistics office has also released public statements about punishing local governments for falsifying data. The accuracy of official data in China has long been questioned.

Goldman Sachs noted seasonal revisions on Friday, but maintained its 5.4% forecast for China’s growth. “On the net, we don’t believe the surprises are consistent or large enough for us to make any major adjustments to our China growth forecast this year.”

Researchers have looked for alternatives to measure growth.

One of the organizations is the US-based China Beige Book, which claims to regularly survey companies in China to publish reports on the economic environment.

Earlier this year, company data “showed there was no wave of revenge spending or explosive recovery,” said Shehzad Qazi, managing director of New York-based China Beige Book.

“Wall Street’s predictions of blockbuster growth in China were first based on hype, then bolstered by inflated Chinese GDP numbers through early 2023.”

Qazi testified this month at a US House Select Committee hearing on the Chinese Communist Party.

Investment banking research is often known as the “sell side”, because it is intended to inform buyers about financial products and company actions.

In the case of China, Qazi pointed out that “investment banks are not only incentivized to sell a ‘China on the rise’ story, but given their business interests in China, they are also unwilling to publish opinions that could be considered critical of the Chinese economy.”

The World Bank and International Monetary Fund have also released regular economic forecasts for China and other countries. However, their reporting schedule means the forecast may not entirely match the current economic situation.

In June, the World Bank raised its growth forecast for China this year to 5.6% from 4.3% previously.

In April, the International Monetary Fund raised its forecast for China’s GDP to 5.2% from 4.4% previously. This month, its spokesman noted that growth was slowing in China and said an “updated forecast” would be reflected in the IMF’s upcoming World Economic Outlook.

In recent weeks, Chinese officials have stressed that the country is on track to achieve its annual growth target of around 5%.

Of the six investment firms reviewed by CNBC, the highest Chinese GDP forecast so far this year was JPMorgan’s 6.4% figure – when the bank adjusted for the second time in April alone.

In total, the range in the company’s forecast extends 1.4 percentage points, most of that of the CNBC analysis.

Although businesses and investors have expressed uncertainty about China’s short-term economic trajectory, analysts expect growth in the world’s second-largest economy to continue to accelerate in the longer term.

“Overall, there is an emerging case for a cyclical rebound in the Chinese economy in early 2024, even without any significant policy support in the second half of 2023,” Rhodium analysts said.

They said that given four quarters, a steady recovery in household consumption should help boost employment in the services sector, while industrial inventories will likely need to be replenished later.