Part of the art of investing is knowing what the crowd will do before the crowd itself knows, and acting accordingly. China’s economic rebound from Covid-19 may still be uneven, but the green shoots of recovery are evident and the People’s Bank of China has been shrewd in its policy moves. The investing crowd may decide China is again the place to focus on. Industrial production in China, a measurement of manufacturing and mining output, expanded by 4.8 per cent in July on a year-on-year basis. That matched June’s increase and continued China’s four-month growth expansion after the pandemic-driven contraction of the first quarter of 2020. Admittedly, retail sales in China disappointed in July, falling well below analyst expectations for the first monthly increase of 2020 and registering a 1.1 per cent decline year on year. This followed falls of 1.8 per cent in June and 2.8 per cent in May. Given that China is the world’s biggest market, retail sales matter but consumers can’t buy products if the production chain isn’t functioning. Additionally, the Chinese workers who power China’s industrial output are also consumers. The more secure that workforce feels, the likelier it is those workers start to spend. Of course, there is a risk if industrial production gets ahead of the real economy. It could have a disinflationary impact on factory gate prices and then feed into the core consumer price index. Albert Edwards, global strategist at French bank Societe Generale, noted last week that there was “a slump in China’s core CPI inflation in July to only 0.5 per cent [year on year] versus a 0.9 per cent rise in June” and that China’s gross domestic product “deflator dropped into deflation” in the second quarter. This is arguably where the narrative gets more interesting from the perspective of the global investment community. In other major economies, the response of central banks to Covid-19 has led to the dramatic loosening of monetary policy. Moves towards ultra-accommodative policy have seen interest rates slashed and large-scale asset purchase programmes unveiled in an attempt to cushion economies from the impact of Covid-19. The PBOC has adopted a different, more nuanced strategy. It noted in its first-quarter monetary policy report , published in May, that the policy moves of other major central banks meant “major economies have less room for policy manoeuvre”. China Covid-19 stimulus ‘10 times more efficient’ than US Fed: official Additionally, the report stated that “close attention should be paid to the spillovers of the highly accommodative unconventional monetary and fiscal policies in the major economies”. It argued that “monetary and fiscal policies can only counteract the negative impact of the pandemic” but “future global economic recovery and financial development still depend on progress in pandemic containment”. Meanwhile, it noted, “the negative effects of unconventional policies will play out gradually”. It should be no surprise that, as the China Watch team at independent investment research provider TS Lombard wrote last week, the PBOC has adopted a more cautious policy stance, removing “targets for credit growth and interest rate cuts” and with support for China’s real economy directed “via [required reserve ratio]-facilitated bond issuance and targeted lending”. TS Lombard also said the PBOC intends to maintain relatively high interest rates in China, in stark contrast to its peers elsewhere, and expects the current rate differential between the higher-yielding 10-year Chinese government bond and the 10-year US Treasury to stay above 2 per cent “for the foreseeable future”. As it stands, the recovery of the Chinese economy has proceeded without China’s central bank going all-in with monetary policy loosening . Consequently, and in contrast to many other major central banks, the PBOC still has plenty of options in its monetary policy toolkit it could resort to if it feels the need. Looking ahead, PBOC governor Yi Gang said earlier this month that in the second half of 2020, China’s “monetary policy will be more flexible and appropriate and better targeted, and existing policies to stabilise businesses and safeguard employment will be fully implemented”. All economies have been hit by the global health emergency that is Covid-19. Even so, China is exhibiting some signs of recovery while the PBOC still has plenty of policy options that could be deployed if required. The wisdom of the global investment crowd should again lead it towards China. Neal Kimberley is a commentator on macroeconomics and financial markets