Chinese economic growth is reviving, as predicted by stronger monetary expansion last autumn (see, for example, here). The latest monetary data suggest that the recovery will extend through late summer, at least.

March purchasing managers’ survey results beat consensus estimates, with forward-looking components notably stronger. The new orders indices in the official and Markit / Caixin manufacturing surveys rose above 50, to their highest levels since September 2014 and February 2015 respectively – see first chart. A pick-up had been suggested by a sharp rise in the business expectations component of the official survey in February; this component strengthened further in March – second chart.



The new orders component of the official non-manufacturing survey also regained the 50 level last month, having fallen below it in January / February.

Not all business surveys are yet giving a positive message. The PBoC’s quarterly survey of entrepreneurs, also released today, reported a further weakening of domestic and export orders. This survey, however, seems to lag at turning points: for example, the official and Markit / Caixin manufacturing PMI new orders indices bottomed in November 2008 but the trough in the PBoC survey orders components occurred in the first quarter of 2009.

Other recent indicators support the view that reflation is underway. Annual new house price inflation rose further to 3.6% in February, while industrial profits in January / February were up by 4.8% from a year before. The improvement in these series is consistent with the normal pattern following money supply acceleration – third chart.


Foreign exchange reserves data for March next week could provide further good news, showing a slowdown in the rate of decline or even a small rise. The monthly reserves change has been positively correlated with the premium / discount of the offshore renminbi (CNH) to the onshore rate (CNY); a premium has recently been restored, following a large discount in January – fourth chart. Valuation effects should boost the US dollar value of reserves, with the US currency weakening against the euro, sterling and yen during March.


The PBoC has taken advantage of dollar weakness to pursue further depreciation against the new currency basket. The RMB index is down by 2.9% since the start of the year and 7.2% below its level before the August mini-devaluation – fifth chart. This has contributed to a recovery in the PMI export order indices, although global activity, in addition, may be firming.