Slowdown in China equity trading could hit GDP in 2016: Fed researcher

WASHINGTON (Reuters) - A slowdown in trading on China's stock market to more normal levels could knock roughly a half percentage point off the country's economic growth rate this year, a Federal Reserve researcher said in a report that aimed to independently measure China's growth.

The report released on Monday by the Kansas City Fed follows months of growing doubts over the veracity of Chinese economic statistics which have shown growth rates holding near 7 percent.

Many investors think policymakers have acted as if the economy were slowing sharply, with Beijing allowing a currency devaluation last year and cutting interest rates on Monday.

Economist Jun Nie at the Kansas City Federal Reserve Bank, however, built an alternate model to estimate Chinese economic growth which he found closely tracked Beijing's official data over the last decade, backing the view that Beijing is not cooking its books.

Nie said Beijing's GDP series appeared to be getting a boost over the last year from increased trading in Chinese financial markets, a development that wasn't captured in the Kansas City Fed's model, which showed a slightly lower growth path over the period. The extra trading over the last year would have helped GDP growth by boosting broker commissions and other fees in the financial sector.

"This finding highlights potential risk to the Chinese growth outlook in the near term," Nie said in a research note. "If the contribution to GDP growth from finance returns to its average level in 2000-15, the contribution of the finance sector to GDP growth will be 0.6 percentage points smaller in 2016 than in 2015."

(Reporting by Jason Lange; Editing by Andrea Ricci)