The Chinese economy appears to be turning up — although it’s early days and a still slowing Europe could derail the rebound, helped by America falling off the fiscal cliff in early 2013.

But until then, the signs are growing stronger that Australia’s most important export customer is on the improve, according to the Organisation for Economic Co-Operation and Development. The same bears who forecast doom and gloom about China and Australia have been largely absent in the past few weeks as commodity prices recover and more signs emerge that China’s economy is bottoming out.

It’s not all rosy — weaknesses persist in China, especially with the change of leadership likely to bring a period of uncertainty. Plus, its biggest market, Europe, is looking glummer and the outlook for the US remains clouded after the election result and could continue like that up to the end of the year.

But iron ore prices are improving, output of electricity has risen again, industrial production is doing better, inflation has fallen, exports are rising faster than expected and property prices haven’t collapsed. China’s economy seems to be bouncing on the bottom of the recent slowdown and an upturn is now being expected to start this quarter. Iron ore imports fell in October, but that was due to the week-long holiday at the start of the month. Compared to a year ago though, they jumped sharply (Chinese steel production slumped in November 2011). Oil imports jumped, retail sales and investment were a touch stronger.

For whatever reason, the Australian media has been hesitant to examine the improvement. The media and analysts told us that the boom in iron ore was over as prices slumped past $US120 a tonne, then $US100 and then $US90 to reach around $US87. But by Friday, Chinese spot prices for Australian iron ore had risen by close to 40% to reach $US122 a tonne, the highest for about four months.

The Reserve Bank’s cuts to its forecasts for Australian economic growth in 2013 and 2014 came on the back of sluggish Chinese economy and commodity prices, a weakening Europe and the possibility of a partial fiscal cliff in the US in early 2013, as well as the contractionary impact of the Gillard government’s cuts in budget spending.

“The United States is expected to cede its place as the world’s largest economy to China, as early as 2016. India’s GDP is also expected to pass that of the United States over the long term.”

Within a few hours of the RBA forecasts, China started releasing monthly economic data for October (along with the quarterly data for the three months to September), which had offshore analysts predicting the bottom of the country’s economic slowdown, with signs of gathering momentum.

For example, inflation was less than expected at 1.7% in the year to October, better than the 1.9% rate in the year to September, while producer prices fell at an annual rate of 2.8%. But a sharp rise in Chinese exports last month (up 11.6%), saw the country’s trade surplus jump to $US32 billion, the largest since January 2009, when the country was still gripped by the GFC. Imports were only up 2.4%, but that was impacted by the week’s national holiday at the start of October which cut the amounts of commodity imports like copper and iron ore. Imports also fell because of lower prices for commodities such as oil, copper, wheat, coal and iron ore. In fact while iron ore imports were up 9% in the first 10 months of the year, prices were down almost 21%, from 2011. That’s helping China and hurting our terms of trade, but not the strength of our dollar which is still above $US1.03.

As expected, exports to recessed Europe fell 5.8% in the 10 months to October (the fifth monthly fall in a row). A year ago they were up 16%. Exports to the US were up 9.5% , slower than the 14.6% rise. Exports to Japan again were weak, as were imports.

Industrial production rose 9.6% in the year to October, up from 9.2% in September. The country imported 23.68 million tonnes of crude oil in October, up 13.9% higher than the 20.8 million tonnes in October 2011 and 18% above the 20.08 million tonnes in September. The rise in crude imports coincided with a rebound in power output: up 6.4% in October (from a year earlier), well above the 1.5% in September and 2.7% in August. Retail sales were up 14.5% for the month from a year earlier, while fixed-asset investment — a measure of spending on construction, plant equipment and other projects — grew 20.7% year-on-year in the first 10 months of the year.

But the most interesting news about China came from the OECD which produced a rosy forecast that would have been hard to believe a month or three ago:

“Divergent long-term growth patterns lead to radical shifts in the relative size of economies. The United States is expected to cede its place as the world’s largest economy to China, as early as 2016. India’s GDP is also expected to pass that of the United States over the long term. Combined, the two Asian giants will soon surpass the collective economy of the G7 nations. Fast-ageing economic heavyweights, such as Japan and the euro area, will gradually lose ground on the global GDP table to countries with a younger population, like Indonesia and Brazil.”

Australia’s Asian Century is much closer than we know.