Standard Chartered’s report suggests that China’s household consumption might be underestimated. This is because some government transfers aren’t counted, and the purchasing power of the RMB is strong. While boosting domestic demand is vital, it may not quickly fix issues with external trade balances and deflation.

China’s Consumption Base

China’s actual consumption might be higher than official data shows. Even though household spending is a smaller part of GDP compared to the global average, growth in consumption is slowing. Therefore, it’s important to focus on expanding the services sector. Programs like the goods trade-in initiative may not be enough to lift overall consumption. These efforts alone likely won’t resolve trade imbalances or deflation. In the upcoming period, China is predicted to keep its export strength, leading to a large current account surplus. Domestic inflation is expected to stay low. The idea that China’s household consumption is stronger than reported offers a nuanced opportunity. While this hidden strength is encouraging, the outlook of continued low inflation and a significant trade surplus presents a complicated scenario. It indicates the economy isn’t poised for a straightforward, inflation-driven surge.

Option Strategies on The Yuan

In light of this, we should explore option strategies for the yuan that capitalize on low volatility and gradual strengthening. The strong current account surplus — which remained robust through late 2025 — alongside muted domestic inflation (with January’s CPI at just 0.5%), suggests that significant currency weakness is unlikely. Selling short-dated USD/CNH call options could be an effective way to benefit from this stable setting. For equity derivatives, we should emphasize consumer sectors that gain from this underrepresented demand. This means considering call options on ETFs that focus on Chinese internet and e-commerce leaders, which reflect service-based spending not fully captured by retail sales data focused on goods. Last year, we noted this gap as travel and online services booked in late 2025 significantly exceeded physical goods sales. However, we must be cautious about general market gains. The report shows that government support programs aren’t miracle solutions. For instance, the limited effect of the appliance trade-in scheme in 2025 serves as a historical example. Thus, betting on a large stimulus-driven rally via broad index futures like the FTSE China A50 might be misguided. The expectation of ongoing export competitiveness points to continued demand for industrial commodities. This supports holding long positions in copper futures. China’s leading role in manufacturing, especially in green technologies like electric vehicles and solar panels, will require substantial raw material inputs. Recent trade data from December 2025 confirmed that exports in these high-value sectors increased, even as global demand began to slow. This steady yet deflationary growth implies that market volatility could be overrated. If the market isn’t heading for a significant downturn or inflation spike, implied volatility on Chinese equity indices may decrease. We could design trades to profit from this trend, such as selling strangles on the Hang Seng China Enterprises Index, positioning for stability rather than a sudden surge. Create your live VT Markets account and start trading now.

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