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Opinion | There are positive signs, but the Chinese economy is not out of the woods yet

A set of numbers in March may not predict China's growth for the year, but they may reinforce signs that the world's second-largest economy is recovering and key confidence is returning.

A case in point is the latest release of a private manufacturing sector survey, the Caixin/S&P Global Purchase Managers' Index (PMI).

It showed China's manufacturing activity grew at its fastest pace in 13 months in March and business confidence hit an 11-month high.

The driver was new orders from home and abroad. The PMI of 51.1 percent – ​​50 percent separates growth from contraction – exceeded economists' forecasts. It confirmed an official PMI from the previous day that also showed an improvement in sentiment among factory owners.

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Additionally, Zhao Qinghe, a senior statistician at the National Bureau of Statistics, found an extended upward trend in sentiment in 15 out of 21 industries surveyed, compared to just five the month before.

The initial reactions on the markets were positive. The indices came amid President Xi Jinping's reassurance to a delegation of business leaders from the United States that the economy was healthy and his promise of more policy support to improve the business environment.

Combined with stronger than expected trade and industrial production data in the first two months of this year, the PMI challenges the pessimism.

It is still too early to say whether China is finally out of the woods. Seasonal factors may need to be taken into account. The external environment remains volatile and uncertain.

It is to be expected that the so-called overcapacity in production will become a new focal point among Western trading partners.

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US Treasury Secretary Janet Yellen will discuss the issue during a visit to China this month. This includes a meeting soon after their arrival with American companies that will focus on excess capacity, particularly in solar energy and electric vehicles.

It is likely to set the tone for later talks in Beijing, which also faces greater scrutiny from Europe over its electric vehicle exports.

However, the latest data suggests that the gloom about growth is premature and that China is undergoing a restructuring of its economy.

To reduce the risks associated with serious trade conflicts, Beijing must focus on domestic consumption.

Fortunately, things are improving and the central bank still has plenty of options in its toolbox. It will not rely on massive economic stimulus, but will focus on gradual expansion to drive an economic recovery.

Assuming confidence continues, this is a sound strategy to achieve the 5 percent growth target set by the central government for this year.

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