Today’s released Chinese manufacturing and services gauge, provided further evidence that stimulus effect, both monetary and fiscal might be kicking in to the real economy.

• Official manufacturing PMI reached 50.2, which signals growth, compared to last month’s 49. Services PMI edged up 53.8 from 52.7.
• Private gauge, Caixin manufacturing PMI edged up to 49.7 from last month’s 48.

In the meantime, price continue to move up in properties market, largely in first tier and second tier cities. In Shenzhen prices have risen around 60-70% in past one year.

Steel and iron prices have also edged up from their bottom, set earlier this year.

People’s bank of China (PBoC) has aggressively intervened, even in offshore market to reduce the bests against Yuan.

All in all, it would be fair to say downside risks have diminished. Yesterday, we along with other financial media reported that Yuan based Hibor (Hong Kong Interbank offered rate) gone negative for first time ever, meaning you are being paid to be short in offshore Yuan. Still lacklustre interest shows mood has somewhat changed.

Has it changed fundamentally?

Our guess is no.

Since China’s real sets of problems such as high corporate leverages, higher net debt and over-capacity still remain unanswered for, stimulus runs the risk of creating zombie corporations, leading to painful adjustments later on.

So as long as these concerns are not addressed through necessary reforms Yuan likely to remain under pressure.

So the actions taken by Chinese government and PBoC may have led to a reassessment in terms of time not direction. They have just postponed the inevitable that these debt levels are not sustainable, given China’s status in the market.

In the meantime, market participants have understood the mantra “Don’t fight PBoC too hard” at least now, with huge stockpile of reserves.

Yuan is currently trading at 6.46 per Dollar.