First indications from March on China’s economy suggest a cautious recovery going into the second quarter, following a difficult 2023 and early 2024.

The official purchasing managers index for China’s factories rose beyond the 50-point mark separating expansion from contraction in March, according to data released over the weekend. This was the first occurrence since September. A distinct manufacturing barometer from Caixin and S&P Global reached a 13-month high, while the services sector index recorded its best level since June.

The bright side is that the upturn is likely to last: The global electronics industry and exports are showing signs of life again, and investment is getting a boost from China’s more accommodating credit markets. Unfortunately, U.S. rates are climbing again, and Beijing appears extremely worried about allowing the yuan to fall too much.

That could complicate efforts to implement more substantial monetary assistance. Not to mention that the Chinese real estate market and employment situation remain dismal. The official target of growth by 2024—around 5%—still seems like a lofty goal.

Still, the recent monetary easing in China, particularly the large reduction to banks’ reserve requirement ratios that went into effect in early February, appears to be having the desired effect. Borrowing rates appeared too high for the overall health of the economy for a long time, but credit markets have started to improve recently, especially for borrowers with lower ratings. Data source CEIC reports that yields on three-month, AA-minus rated corporate debt have decreased by 0.6 percentage points since mid-February. Yields on Chinese government bonds have also fallen sharply, though not quite as much.

Simultaneously, exports have started to appear healthier. Both the officially reported export orders PMI subindex and the privately compiled Caixin survey saw increases in March, with the former reaching 51.3, a level not seen in 13 months. The conclusion of the Lunar New Year and other seasonal events could be a contributing element. On the other hand, there has been some indication that the worldwide electronics sector is on the mend, and that American consumers are feeling less glum: In March, the consumer mood index from the University of Michigan reached its peak since the middle of 2021.

That China’s manufacturing investment is starting to recover a little more convincingly shouldn’t come as a surprise. In January and February, overall, factory investment increased by about 10% year over year. There was a nearly 15% increase in investment for the manufacturing of computer and communication equipment. Those numbers came to 6.5% and 9.3% for the entire year 2023.

There are also some concerns about the sustainability of the current momentum. Since late March, when the yuan was selling off and U.S. Treasury yields and inflation indicators were rising again, short-term interbank rates have surged considerably again. Factory sector investment might take a nosedive if the People’s Bank of China resumes marginal liquidity tightening in an effort to protect the yuan. Equally crucial, the employment subindexes failed to reflect the improvement in the headline official PMI readings last month, and the housing sector statistics for January and February continued to appear sluggish.

The Chinese economy is in dire need of exports and a dovish central bank given the persistently weak state of the employment and housing sectors. One of those props might be in jeopardy if the Fed decides to postpone cutting interest rates.