Moving into the second quarter of 2018, despite headwinds facing global trade, persisting structural challenges in Asian economies and pessimistic speculations, China remains a stabilizing factor with strong first-quarter performance,and its growth rate over the next decade is expected to be about 6 percent. The core challenge for China remains its sovereign debt problem, which has been the target of recent financial sector reforms and interventions. But given the country’s low government debt and high savings, this issue appears to be wholly manageable.

Manufacturing All Systems Go

China’s manufacturing sector showed stronger growth than anticipated, with the official purchasing managers’ index rising to 51.5 in March. This was up from February’s level of just 50.3, which was 19-month low and sat along the threshold.This rebound in growth was likely caused by a spur in construction and renewed factory activity. Despite recent tensions surrounding tariffs between Washington and Beijing, Chinese steel mills continue with strong production. The producer price index rose by 3.1 percent year on year as compared to growth of 3.7 percent in February. This softened increase is partly attributable to a sustained decline in factory-gate in flation, which corroborates the view that China’s economy is gradually slowing.China’s consumer price index in March slightly undercut the expected 2.6 percent to rise by 2.1 percent, slowing from the February increase of 2.9 percent.

RMB Strengthens

The Chinese yuan has performed well in foreign exchange markets. Over the past year, the People’s Bank of China has continued to carefully loosen currency controls, giving it a valuable liquidity boost. This past quarter alone, the currency posted its biggest quarterly increase in the past 10 years.Also poised to increase the yuan’s value are China’s new oil futures. China’s Shanghai International Energy Exchange has begun trading the oil futures in an attempt to take on the big benchmarks in Europe and the U.S. More than 150 domestic firms and 19 foreign firms have been given permission to sell the crude-oil contract to traders. These yuan-denominated futures will be available to both foreign and domestic investors.Analysts in China say the country may pay for its oil imports using yuan in the coming years,which could challenge the dominance of the petrodollar.ca

The ChinAfrica Econometer is produced by the beijing axis, an international advisory and procurement firm operating in four principal areas: Procurement, Sales Activation, Capital, and Strategy.for more information, please contact: Kobus van der Wath,kobus@axisgroup-international.com, www.thebeijingaxis.com