China’s manufacturing PMI has been below 50 since April, yet the industrial production is growing strong. This difference is likely because China is focusing more on high-end manufacturing. A PMI reading of 49.3 may be a better indicator of when growth starts or stops. The official manufacturing PMI stayed below 50 from April to September, suggesting that manufacturing activity is declining. However, industrial production growth still saw a year-on-year rise of 6.2% in August 2025, even after seasonal adjustments.

China’s Shift Towards High-End Manufacturing

The change might come from what the PMI measures and China’s focus on high-value sectors. The high-energy sector has weighed down the PMI, while high-tech and equipment manufacturing have grown in industrial production. A headline manufacturing PMI of 49.3 could more clearly show whether the economy is growing or shrinking. Thus, the September PMI of 49.8 indicates an increase in industrial production, even if it’s under 50. We think the market is misunderstanding the recent low PMI readings from China. September’s headline of 49.8 is seen as a sign of ongoing contraction, leading to negative sentiment. This ignores the strong underlying data. The difference likely arises from the PMI survey focusing on older, energy-heavy industries that pull down the overall number. Meanwhile, China’s shift towards high-end manufacturing supports solid industrial production. The September IP data shows robust growth at 6.4% year-on-year. This structural change means traditional indicators are becoming less accurate.

Opportunities and Market Implications

Our analysis over the past five years suggests that a PMI reading of 49.3 should mark the line for growth and decline. Therefore, September’s PMI of 49.8 doesn’t indicate a contraction; rather, it shows strong month-on-month growth. This signals that the economy has more momentum than what is currently reflected in asset prices. This could indicate that bearish views on industrial commodities might be too extreme. We see potential for rising prices in copper and iron ore futures, as the actual demand likely exceeds what the PMI suggests. Iron ore prices on the Dalian Commodity Exchange have already risen over 2% in early October but are still below their summer 2025 highs. In equity derivatives, this creates chances to invest in the potential uplift of Chinese industrial and technology stocks. Options strategies that benefit from a rally in the CSI 300 index might be worth considering, as the market may soon align with the reality of strong output. We saw a similar trend in late 2023 when PMI figures underestimated the eventual recovery in industrial output, surprising many traders. In the currency market, this perspective challenges the idea of a significantly weaker yuan. If industrial activity is indeed growing, the People’s Bank of China may feel less pressure to ease aggressively. This could stabilize the yuan, making strategies that bet against a sharp depreciation of the currency appealing. Create your live VT Markets account and start trading now.

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