Investors world-over fear that China could record another worse-than-expected slowdown this year. Over the past two decades, annual GDP growth in China has averaged around an impressive 10 percent, underpinned mostly by investments, as well as exports. The IMF expects China to account for almost 18 per cent of world economic activity in 2016. Hence a bump in China's economy can definitely not be ignored. A drop in China's growth rate from an expansion of more than 10 per cent in 2010 to 6.3 per cent expected this year could directly knock-off about 0.75 percentage points off the global growth rate. 

The recent week's turmoil in China has hit both stocks and currency markets, sending shock-waves through global financial markets. Stock indexes around the world have seen massive sell-offs, global markets have fallen by 7.1% since January 1st, their worst ever start to a year. The instability brings back to light China's stock market crash and a surprise Yuan devaluation by Beijing in August 2015 which sparked a global rout, and wiped out trillions of U.S. dollars in value from Chinese equities. 

Some of China's leading economic indicators, such as its manufacturing index and factory output, are indeed slowing. This is a rational slowdown which would deliver a healthier and more sustainable growth path. The emerging markets and the rest of the world may just have to the deal with the "new normal" of global growth as the Asian giant seeks a slower, but more sustainable, economic expansion.

Markets will keep focus on China data-deluge, including the GDP, industrial production and retail sales due tomorrow. Expectations are for data to remain weak. Barclays forecasts Q4 GDP growth data to have slowed further to 6.6 % y/y (consensus: 6.9%) from 6.9% in Q3. Industrial production is likely to have moderated, (Barclays: +5.9%y/y; consensus: 6.0%), retail sales (+11%y/y) and fixed asset investment (+10.1%y/y). 

PBoC has strongly signaled a desire for near-term stability by keeping its USD/CNY fixings stable at about 6.56 over the past week. On Monday, the PBoC said they will start implementing RRR to some banks involved in the offshore yuan market, in a move that seemed intended to soak up additional liquidity. The spot market opened at 6.5800 per dollar on Monday and was trading at 6.5792 in early trade, 48 pips below the previous close and 0.31 percent away from the midpoint, which was set at 6.559. The offshore yuan was trading -0.18 percent away from the onshore spot at 6.591 per dollar, firmer than the previous day's close of 6.6165.