TAIPEI, Taiwan (TheStreet) - China's latest stimulus may be aimed at bolstering the country's slowing economy. But the moves are fueling suspicions that the $10 trillion-plus economy may be worse off than Beijing is letting on.
China announced Friday that it was cutting the benchmark lending rate from 4.6% to 4.35% and a deposit rate to 1.5%. China has cut rates six times this year along with other policies, such as currency liberalization, to stoke investment.
The steps are intended to help Chinese Internet security firms like Qihoo 360 (QIHU) and e-commerce portal Dangdang.com (DANG) , two fast-growing U.S.-listed companies, get cheaper loans for any planned expansion.
"The rate cuts should be positive news for investors, including foreign ones, in the short run," said Alicia Garcia Herrero, chief Asia-Pacific economist with French investment bank Natixis. But the stimulus could eventually fail, leading to fund outflows, she added.
A lot of analysts the fear China's growth is slowing more than officially stated, possibly with faster-growing prices that would stall the elusive new growth engine of consumer spending.
"The cuts are being made because of the weak economy, so investors will question how weak the economy actually is, given there have been further rate cuts," said Nitin Dialdas, chief investment officer with Hong Kong fund manager Mandarin Capital.
China reported 7.4% growth last year, an extension of slowing growth since 2011. Non-governmental organizations and private researchers expect it slow at least through 2020, possibly to 6%.
China acknowledges that growth is slowing as its economy transitions from factory investment and state spending to consumer consumption and private enterprise.
Speculation on China's actual GDP growth ranges from zero to just a fraction of a percentage point lower than official data.
A 2013 study by Washington's U.S.-China Economic and Security Review Commission said U.S. businesses "need to be briefed on the risks they face in relying on Chinese statistics."
That advice would apply to portfolio investors in China-tracking exchange-traded funds such as Van Eck Global's Market Vectors ChinaAMC A-Share ETF (PEK - Get Report) or mutual funds, Goldman Sachs China Equity Fund Class "A" Shares (GNIAX) , for example.
The government with no effective legislative or popular oversight is hyping up stats to make the economy look strong, some experts say.
Communist scholars "are well aware of the Keynesian insight that consumption is more likely to rise when the consumer has happy expectations about the economic future," said Edward Friedman, political science professor emeritus at the University of Wisconsin, Madison.
"So (Party) leaders talk up the economy to try to drive consumption up," Friedman said. "Should that policy plus lower interest rates work to kick start the economy again, Party leaders will look like prophets and not liars."
Statistics have improved over the past two decades, however, despite the central government sometimes spotty access to local information across the 1.3 billion population.
"In almost every area, the most prominent remaining challenges are technical, that is...capacity to collect the data they need," said Scott Kennedy, director with the Project on Chinese Business & Political Economy under the Center for Strategic & International Studies think tank.