China’s official Purchasing Managers’ Index rose to 51 in August indicating the manufacturing sector has started to stabilize. The index was at a 16-month high, and beat market expectations of 50.6. The July PMI stood at 50.3.

Likewise, the HSBC PMI for the same month signaled an expansion in the sector for the first time in four months, with a jump to 50.1 from 47.7 in July. A reading of more than 50 means expanding activity while a PMI of below 50 signals a contraction.

Global Sources called the export rebound as early as June. In a supplier survey published that month, more than 70 percent of respondents said they expected second-half 2013 export revenue to increase YoY.

Yifan Hu, head of research and chief economist of Hong Kong-based Haitong International, wrote on Weibo. "The new export order index rose from July’s 49 to 50.2 to enter into expansion zone after shrinking for four months in a row, indicating global demand, especially euro zone demand, is gradually returning to normal." Hu forecast initially the economy hitting rock bottom then rebounding in July before recovering fully in the second half of 2013.

The euro zone’s August PMI is likewise encouraging. The index rose to 51.4 from 50.2 in July, indicating that China’s largest export market is moving out of recession. China aims to attract more foreign investment with the opening of its first free trade zone in September. The 28.78sqkm Shanghai FTZ covers Shanghai Waigaoqiao Free Trade Zone, Waigaoqiao Bonded Logistics Park, Yangshan Bonded Port and Shanghai Pudong Airport Free Trade Zone.

Nevertheless, there are external challenges. These have already forced the export order sub-index to fall behind the PMI and hover around the 50 percent neutral level. The US Federal Reserve’s plan to slow down asset purchases, for example, could threaten the recovering global economy, particularly in emerging markets. Hu of Haitong, however, believes the Fed will put off the move until the fourth quarter of 2013 given the current global market situation.

Also, the appreciating yuan coupled with weakening currencies of Japan and developing economies is making China products more expensive in these markets.