Economic data from China for July 2025 fell short of expectations in several important areas. Retail sales increased by just 3.7% compared to the same time last year, missing the forecast of 4.6% and down from the previous 4.8%. Industrial production grew by 5.7% year-on-year, also below the expected 6.0% and down from 6.8% earlier. Fixed asset investment rose by only 1.6% from January to July, falling short of the forecasted 2.7% after a prior increase of 2.8%. The unemployment rate edged up to 5.2% from 5.1%. The National Bureau of Statistics (NBS) noted this increase is partly due to the college graduation season. Year-to-date industrial production showed a slight decline to 6.3%, down from 6.4% before. Extreme weather, like heatwaves and flooding, has also impacted economic activities in some regions.

National Bureau of Statistics Statement

The NBS mentioned that despite external changes and bad weather, the economy is showing a steady trend. However, issues like the property market’s debt burden are hurting investment and consumer demand. While tariffs on exports haven’t hurt as badly as expected, future challenges are still possible. The disappointing July 2025 data indicates a continued economic slowdown in China, increasing pressure on Beijing to respond. We expect an interest rate cut from the People’s Bank of China (PBOC) soon, likely targeting the one-year loan prime rate (LPR) this month. This anticipation will guide our short-term strategies, focusing more on policy changes than the data itself. This outlook favors shorting the offshore yuan (CNH) against the U.S. dollar, as policy easing is likely to weaken the currency. We are also taking more bearish positions on the Australian dollar since over a third of Australia’s exports go to China. Buying put options on the AUD/USD currency pair provides a low-risk way to capitalize on this expected weakness. For stocks, we are purchasing put options on popular China ETFs like FXI, anticipating further declines as global investors react to this news. The CBOE China ETF Volatility Index (VXFXI) has already risen, and we expect it to increase in the coming weeks. This suggests that long volatility positions could be profitable as uncertainty grows.

Industrial Production and Commodity Prices

The decline in industrial production and fixed asset investment is a bad sign for industrial commodities. Therefore, we are strengthening our short positions in copper and iron ore futures contracts. This trend is similar to the significant drop in commodity prices during China’s slowdown from 2015 to 2016, which stemmed from concerns about industrial demand. While the NBS notes seasonal factors behind the rise in unemployment, we remain cautious. Youth unemployment hit a record high of over 21% in mid-2023, indicating that this is a long-term structural problem, not just a passing issue. This weakness in the job market will continue to weigh on the disappointing retail sales figures. The main problem still lies in the property sector’s debt crisis, which we have been watching since the major defaults of Evergrande and Country Garden in previous years. This crisis continues to hurt consumer confidence and hinders a real recovery in investment. Without a credible, large-scale solution to this dilemma, we will view any government-triggered rallies with skepticism and look for opportunities to reverse such movements. Create your live VT Markets account and start trading now.

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