So, if this is the case, what could be the source of these headline data distortions?

First, the survey is seasonally adjusted. Most countries report this data on an annualized basis, and if China followed this standard, the number would have come in below 7%. Other factors are perhaps more worrisome.

One example can be found in the widely criticized trade figures from April, where potentially inaccurate invoicing inflated export growth to 14.7%.

Central criticisms were based on the fact that these impressive gains came at a time when exports to Europe and the U.S. actually dropped. To make up for this, the report showed a 57% rise in transactions with Hong Kong, even with the region experiencing a port worker strike that closed key trading routes during the month.

At this stage, it looks much more likely that these factors (along with official statistics that do not appropriately adjust for inflation) have created an inaccurate picture of what is really happening in the Chinese economy. More troubling is the fact that the country's leadership seemed to signal this trouble in advance. Before the GDP report was released, Finance Minister Lou Jiwei said China expects yearly growth rates to come in near 7% -- an implicit suggestion that the third and fourth quarters will average something near 6.5%.

This means that Lou either expects China's economy to experience an even greater slowdown in the second half of the year, or he knew the initial projections were unrealistic and he sought to prepare the market for a negative outcome. Either way, investors with exposure to Chinese assets must take these possibilities into account, as China's economic prospects into 2014 look murky at best.

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.
Richard Cox is a university teacher in international trade and finance, focusing primarily on macroeconomics and price behavior in equity markets. His articles appear on a variety of websites, including, Seeking Alpha, FX Street, and others. Investing strategies are based on technical and fundamental analysis of all the major asset classes (stock indices, currencies, and commodities). Trade ideas are generally based on time horizons of one to six months.

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