China’s manufacturing sector has shrunk for the fifth month in a row. In August, the Purchasing Managers’ Index (PMI) was at 49.4, just below the expected 49.5. This ongoing decline stems from weak demand, U.S. tariffs, a long-lasting property slump, and rising local government debt. However, non-manufacturing activity showed slight growth. The PMI for services and construction hit 50.3, lifting the composite index to 50.5. Despite a 90-day extension of the U.S.–China tariff truce, uncertainty continues to undermine confidence, highlighted by a notable decrease in bank lending in July.

China’s Troubled Property Market

China’s property market is still in trouble, with property sales falling 17.6% in August, marking the sixth straight month of decline. Although consumer subsidies have increased, household spending and mortgage demand remain low, which weakens the economy. A private survey is expected to provide insights on manufacturing PMI, with predictions suggesting a slight rise to 49.7 from 49.5. September 1, 2025, is a significant date on the economic calendar in Asia, as many await China’s manufacturing PMI results. The continued contraction in China’s manufacturing sector confirms a slowing economy. The official PMI of 49.4 resembles trends from the downturn in 2022, indicating ongoing weakness. In the upcoming weeks, purchasing put options on China-focused ETFs like FXI might be a smart move to prepare for further declines.

Economic Repercussions and Investment Strategies

The ongoing decline in the property market, with sales dropping by another 17.6% in August, raises serious concerns for the overall economy. This affects everything from construction materials to consumer confidence and bank stability. We expect this to have a negative impact on industrial metals, particularly looking to short copper futures, which have struggled to stay above $8,900 per tonne due to weak Chinese demand. The uncertainty surrounding U.S. tariffs and low domestic demand is likely to boost market volatility. The Hang Seng Volatility Index (VHSI) has already risen over 15% in the last quarter, and we expect this trend to continue. In this environment, strategies like long straddles on major Chinese tech stocks could be profitable as they can benefit from significant price fluctuations in either direction. The weak economic data increases pressure on the People’s Bank of China to ease policies, which may weaken the currency. The offshore yuan (CNH) is testing the 7.40 level against the U.S. dollar, a significant psychological threshold. We see potential in buying USD/CNH call options, betting that authorities will allow a stronger depreciation to support the economy. China’s weakness will have global consequences, especially for countries that depend on Chinese demand. The Australian dollar, a key indicator of Chinese economic health, has already dropped 4% since June, especially since over 30% of Australia’s exports go to China. As a hedge against this ongoing issue, we are considering put options on the AUD/USD currency pair. Create your live VT Markets account and start trading now.

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