Chinese data pointing in the right direction

The publication of encouraging indicators for March imply that hard-landing fears in the second most important economy in the world are misplaced.

Last week’s better-than-expected PMI activity data in both the non-manufacturing and manufacturing sectors have been followed by encouraging data of foreign reserves, price inflation, production, investment and trade.                                                                                                                     

After significant outflows in Chinese FX assets since last November, the normalization in currency flows is in line with reduced pressures on the Yuan exchange rate. The recent USD weakening has taken the pressure off the Yuan, which has helped ease global deflation fears apparent at the start of the year. 

Further, on a month-on-month basis, producer prices in March climbed 0.5% after more than two years of negative readings. A reversal of deflationary pressures at the factory gates of the world’s #1 manufacturer would be an important step to getting rid of deflation fears globally. 

Finally, China’s export growth (in USD terms) recovered in March, beating market expectations, although it was distorted by a low base effect due to the lunar year. The pick-up in import growth – led by property investment in particular – also pointed to improving domestic demand. 

Most recent news flow out of China, though still fragile, confirms that headwinds for emerging markets are diminishing.