China’s GDP growth is projected to slow to 4.3% in the first quarter of 2026. This is down from 4.8% in the third quarter of 2025, and 4.5% in the fourth quarter of 2025. The slowdown is reflected in various economic indicators, including industrial activity, loans, fixed asset investments, exports, and retail sales. Trade prospects appear uncertain due to ongoing trade tensions, which have resulted in previous stockpiling decreasing. Future growth will rely on recovering asset markets and boosting consumer spending.

Investment Strategies

With China’s GDP growth expected to drop to 4.3% this quarter, we can anticipate continued weakness in Chinese equity markets. The decline from 4.8% to 4.5% last year is now confirmed by weak industrial activity and loan data, making it favorable to take bearish positions. Traders might consider buying put options on China-focused ETFs like FXI or MCHI to benefit from a possible decline in the weeks ahead. Recent data from late 2025 reinforces this view. Industrial production growth in December fell to 4.0% year-over-year, a significant drop from earlier in the year. Retail sales were also disappointing, growing only 2.9%, which indicates low consumer confidence. These figures support the slowdown perspective and reinforce the strategy of shorting index futures on the Hang Seng or A50. The slowing economy could also impact the Chinese Yuan. The central bank may lean toward a weaker currency to encourage exports. The USD/CNH exchange rate has already risen from 7.25 to over 7.30 in the last months of 2025, and this trend might speed up. We should consider buying call options on the USD/CNH pair, anticipating further Yuan depreciation against the dollar. A slowdown in China, the world’s biggest commodity consumer, will affect global raw material prices. Iron ore prices have recently dropped to about $115 per tonne, down from their highs in late 2025, signaling reduced demand for steel. Therefore, buying puts on major mining companies like BHP and Rio Tinto, which rely heavily on Chinese industrial activity, could be a smart move.

Impact on Global Companies

The effects of China’s slowdown will reach multinational companies with significant sales in China, especially in luxury and automotive sectors. For instance, German automakers experienced flat sales growth in China during the last quarter of 2025, a sharp contrast to previous years. We should identify companies that get over 25% of their revenue from China and consider bearish options on them before their earnings reports. However, we need to be cautious of possible government intervention. A significant downturn may prompt a policy response from Beijing. There are already rumors about a potential cut to the bank reserve requirement ratio (RRR) that could inject liquidity into the economy. Thus, any bearish positions should have stop-losses or be structured through options to manage risk in the event of sudden stimulus announcements. Create your live VT Markets account and start trading now.

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