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China’s economy coming up trumps

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If the 3.5 percent surge in Shanghai stocks on Monday is anything to go by, sentiment towards China has definitely turned a corner following the latest batch of data from the world's second-largest economy.

China's consumer price inflation was little changed in August, while producer price deflation continued to ease, data showed. These are the latest signs of stabilization in the Chinese economy, which was beset by worries about a sharp slowdown just a few months ago.

The data also follows news on Sunday that exports rose a stronger-than-expected 7.2 percent in August from a year earlier. Analysts polled by Reuters had forecast a 6 percent rise.

(Read more: China exports beat forecasts in August)

"There is a series of positive signals that we've continued to receive from China lately," JPMorgan Chief China Economist Zhu Haibin told CNBC. "Today's numbers and yesterday's numbers continue to show that China's still on the way to a recovery and this recovery will continue in the second half, although the momentum may slow down going into 2014."

Further signs that a slowdown in China's economy has bottomed out come at a good time for global markets, which are grappling with the prospect of an unwinding of U.S. monetary stimulus, turmoil in emerging markets and jitters about potential U.S. military intervention in Syria.

(Read more: Fed can't afford to ignore emerging markets: Lagarde)

"The Chinese economy is stabilizing and they [policymakers] are going to get the 7.5 percent growth they intend," said Paul Bloxham, chief economist for Australia at HSBC, referring to China's full-year growth target. "Given that there is a risk towards emerging markets, a stable China is a good thing in the big scheme of things."

In a decisive thumbs up to the data, the benchmark Shanghai Composite stock index rose as high as 2,218 Monday – its highest level in three months.

"As long as we have improving data this trend [in stocks] will continue," said Jackson Wong, vice president at Tanrich Securities in Hong Kong.

(Read more: What's important in Asia this week)

Focus is now likely to turn to China's August industrial production, fixed asset investment and retail sales numbers due on Tuesday.

Positive signs

Analysts said that the inflation data suggests that demand within China was picking up, while the export numbers reflected a pick-up in overseas demand for Chinese goods. Stimulus measures taken earlier this year are starting to have an impact, they added.

China's annual consumer price inflation rose 2.6 percent on year in August, little changed from July's 2.7 percent rise, official data released on Monday showed. China's producer prices fell 1.6 percent on year in August compared with a 2.3 percent fall a month earlier.

"The narrowing of PPI [producer price index] deflation is good news showing that China's final demand is improving," said JPMorgan's Zhu. "And over the weekend, trade data shows that the external demand has been recovering, benefiting from the global economic recovery."

(Read more: Goldman upgrades China growth, cuts India outlook)

In terms of the outlook for exports, other analysts said they would look at data from around Asia or for a few more months of Chinese export growth to confirm a turnaround.

"We have to wait until we see the import and export data from countries like South Korea, Taiwan, Hong Kong, Singapore to see if there are any meaningful discrepancies," said Marc Faber, publisher of the Gloom, Boom and Doom Report.

—By CNBC.Com's Dhara Ranasinghe; Follow her on Twitter @DharaCNBC

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