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China growth forecast glitch helps fuel global market sell-off

June 29, 2010 | 11:09 am

The only consolation for U.S. stock investors on a day like this may be that their money isn’t in Chinese shares.

The bear market in China deepened dramatically overnight, leaving the Shanghai market down a stunning 30% from its 52-week high reached last August, after an index designed to predict the Chinese economy’s trend was revised sharply downward.

China’s market plunge, which drove the Shanghai composite stock index down 108.23 points, or 4.3%, to 2,427.05, helped fuel selling around the globe. At about 11 a.m. PDT, the U.S. Dow Jones industrial average was off 229 points, or 2.3%, to 9,909.

Chinastox The Dow now is down 11.6% from its spring high of 11,205, reached April 26. But that’s a blip compared with the meltdown in China since late summer -- a sell-off that has accelerated since mid-April.

The Conference Board, a New York-based research group, said its leading economic index for China rose just 0.3% in April instead of the 1.7% the group reported two weeks ago.

The board said the revision stemmed from a calculation error related to construction activity.

“The rising trend of the [index] has been moderating since the middle of last year, suggesting there is no strong basis for assuming accelerating growth,” Bill Adams, resident economist for the Conference Board China Center in Beijing, said in a statement. “The majority of [index] components have been increasing, but consumer expectations fell in April, and new export orders have been weakening for most of the previous six months.”

China this year has been trying to slow its economy to dampen inflation and real estate speculation, but in so doing, it has hammered share prices.

Note, though, that this isn’t an economy that appears in any danger of falling into recession, despite the dive in stocks. The Chinese equity market has a reputation for being more a casino than a useful indicator of what’s happening in the real economy.

The World Bank estimated this month that Chinese gross domestic product will grow 9.5% this year, slowing to 8.5% in 2011.

Still, in a global economy depending on Chinese demand to offset weakness in the developed world, any slowdown is bound to be perceived as a negative. If investors wanted another excuse to sell stocks, the Conference Board glitch gave them one.

-- Tom Petruno

Photo: An investor checking Chinese stock prices Tuesday at a brokerage in Shanxi province.Credit: Reuters

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