China’s export growth surged to a five-month high of 11 percent in October. The result has been a further expansion of the country’s trade surplus to a whopping $32 billion, the scale of which has not been seen since four years prior.

Still, China’s central bank Governor Zhou Xiaochuan remains weary of such positive data, noting the precarious nature of its foundations. The manufacturing engine of the world’s second largest economy is extremely susceptible to fluctuations in demand from the United States and Europe and, seeing as the European Debt Crisis has yet to reach an enduring resolution, there exists a notable downside risk to its current levels.

Monetary Easing

During 2012, the People’s Bank of China has transitioned to a more conservative monetary policy. Cuts to benchmark interest rates and the lowering of banks’ reserve requirement ratios, implemented earlier in the year, have since been replaced with more subtle open market operations. This monetary tightening has been effective in curbing inflation, which was held to a mere 1.7 percent last month. With prices in check, the People’s Bank of China now has more leeway to implement more aggressive easing measures if it sees so fit. In fact, a recent article by Nasdaq suggested that the wording of the PBoC’s Q3 report appears to be more receptive to easing measures than that of the previous quarter.

Chief economist of Hong Kong-based Nomura Holdings Inc., Zhang Zhiwei speculated that PBoC easing measures would propel China’s growth above the 8% threshold this quarter and throughout the first half of 2013 (Bloomberg). However, Zhang noted that such measures would likely be accompanied by higher inflation, which would only spur a reversion back to monetary contraction.