In August, China’s industrial production grew by 5.2% compared to last year. This was lower than the expected 5.8% and down from July’s 5.7% growth. It’s the slowest increase in a year. Excluding rural areas, fixed asset investment rose by only 0.5% this year, falling short of the 1.4% forecast and down from 1.6% prior. Property investment dropped by 12.9% from January to August.

Retail Sales and Unemployment Trends

Retail sales increased by 3.4% from last year, below the forecast of 3.8% and a slowdown from 3.7% in the previous month. This growth is the slowest since November 2024. The unemployment rate went up to 5.3% in August from 5.2% in July. These figures highlight challenges in China, with issues like export tariffs and a weak property market hurting domestic demand. Overall, the economic data for August 2025 is negative and indicates a deeper slowdown in China. With industrial production, retail sales, and investment all below expectations, we can expect ongoing pressure on Chinese-linked assets. This situation suggests anticipating further weakness in the upcoming weeks. Weak domestic demand and falling property investment increase risks for industrial commodities. Copper prices on the London Metal Exchange have dropped below $8,100 per tonne this month, and this data may lead to even lower prices. We should think about buying put options on copper futures or on miners heavily invested in China.

Implications for Financial Markets

The Australian dollar, a significant indicator of China’s economic health, is also looking weak. It recently fell below 0.6500 against the US dollar after this news. The disappointing fixed asset investment data shows decreasing demand for Australian iron ore, which could further weaken the currency. For stocks, the Hang Seng China Enterprises Index might face challenges. It has underperformed compared to global peers throughout 2025, and this new data strengthens the negative trend. We might consider buying puts on China-focused ETFs like FXI to reflect this outlook. Another important area to monitor is the offshore yuan (CNH). The People’s Bank of China has been setting strong daily reference rates to curb its decline, but weak economic fundamentals are exerting significant downward pressure, pushing the USD/CNH rate above 7.35. This tension between policy support and market conditions could lead to a sharp shift, making options strategies that benefit from a weaker yuan appealing. We should remain alert to possible policy responses from Beijing. In the first quarter of 2025, a surprising cut to the bank reserve requirement ratio (RRR) led to a quick, albeit short-lived, market rally. The risk is that similarly disappointing data in the near future could spur stimulus measures, impacting bearish positions. Create your live VT Markets account and start trading now.

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