China’s January PMIs showed differing trends. The official NBS manufacturing index fell to 49.3, while the private RatingDog measure rose to 50.3. This difference mainly stems from how export orders affect each index.
These contrasting PMIs indicate a two-speed economy, with strong exports and technological growth on one side and weak domestic demand on the other. This highlights China’s challenge in balancing these economic forces.
Two Speed Recovery Trend
From our viewpoint in 2025, we first noticed a two-speed recovery in China based on the differing PMI data. This trend continues, with January 2026 figures showing the manufacturing PMI sluggish at 49.2, while export-related metrics remain strong. This reinforces the idea that the economy is being pulled in opposite directions.
The export sector remains a bright spot, a trend we’ve seen for over a year. China’s exports grew by a surprising 2.3% in December 2025, exceeding expectations, thanks to strong global demand for electric vehicles and technology. Traders may want to consider long positions on the offshore yuan (CNH) or call options on China-focused tech ETFs that benefit from this strength.
On the flip side, the domestic economy struggles, weighed down by an ongoing property crisis. Property investment in China fell by 9.6% in 2025, and low consumer confidence continues to dampen domestic spending. This suggests that put options on indices heavily influenced by Chinese real estate or domestic consumer brands could provide a solid hedge.
Pair Trading Strategies
This clear divergence calls for pair trading strategies in the upcoming weeks. We could go long on assets linked to China’s export sector while shorting those tied to its internal economy. For instance, a trade that buys a selection of Chinese EV makers while shorting a group of property developers could take advantage of this two-speed reality.
The conflicting economic signals also suggest that volatility may be mispriced. An unexpected policy move from Beijing to boost domestic demand could trigger a sharp market reaction. Therefore, strategies that profit from significant movements in either direction, such as buying straddles on the FTSE China A50 Index, are worth considering.
This economic split is also apparent in commodities. We observe sustained demand for industrial metals like copper, crucial for export manufacturing, while iron ore demand is low due to a slowdown in construction. Derivative trades favoring copper prices over iron ore could effectively capitalize on this widening gap.
Create your live VT Markets account and start trading now.
here to set up a live account on VT Markets now
