Three recent news items support the forecast here that China has returned to a moderate, stable growth path. First, six-month industrial output expansion revived further to 5.5% (not annualised) in October, up from a low of 1.5% in August*. This is not far beneath the post-2005 average of 6.8% and accords with recent below-par but satisfactory purchasing managers’ survey results – see first chart.

Secondly,  a transformed version of the OECD’s Chinese leading indicator was little changed in September at a level consistent with a further recovery in output expansion – second chart. The indicator, admittedly, has overpredicted recent growth, though seems correctly to have ruled out a “hard landing”. (Claims that the economy has been much weaker than reported are unconvincing, since official output statistics broadly agree with coincident indicators such as the PMIs and equity analysts’ earnings revisions.)

Thirdly, real narrow money M1 – the best monetary leading indicator of the economy – continues to recover, with six-month expansion rising to 4.9% (not annualised) in October. The pick-up, however, pales in comparison with 2009, when six-month growth peaked at 21.6%. Economic prospects are improving at the margin but growth will remain subdued by recent standards. Low inflation, however, implies scope for further policy stimulus should the recover falter.

China faces major structural challenges but the authorities appear to have managed the cycle skilfully, maintaining restrictive monetary conditions long enough to break inflationary psychology but easing just in time to avert a crash landing for the economy – a risk when real M1 was contracting in late 2011 / early 2012.

*Based on an output levels series estimated from official data on year-on-year growth and monthly values / prices.