China’s recent economic data has fallen short of expectations, revealing several challenges. Retail sales in July grew by 3.7% compared to the previous year, but this was below the anticipated 4.6%. Industrial production saw a rise of 5.7% year-on-year, yet it also missed the forecast of 5.9%.

Growth Challenges

Both factory output and retail sales for July did not reach predictions, highlighting growth difficulties within the economy. Additionally, home prices continued to decline both monthly and yearly in July. A spokesperson from the National Bureau of Statistics stated that China’s exports are facing pressure due to external uncertainties. Many companies are also experiencing increased challenges. Tariffs are one of the factors impacting China’s exports. The economic situation seems to be affected by these external pressures. Reflecting on previous data, we see that July’s figures confirmed concerns about underlying weaknesses. The drops in retail sales and industrial production, along with falling home prices, signaled the challenges ahead. The figures indicated that external pressures and tariffs were genuinely affecting the economy.

Current Market Sentiment

Today, we see the consequences of this ongoing trend. The latest July 2025 data shows that China’s manufacturing PMI has been under the 50-point mark for three straight months, currently at 48.9. In light of the slowing growth, now forecasted by the IMF at just 4.1% for 2025, the People’s Bank of China has once again lowered its one-year loan prime rate. This persistent weakness keeps us cautious about the Chinese yuan. The USD/CNH currency pair has been testing the 7.45 level, and we believe it has potential to climb higher. Traders might consider purchasing out-of-the-money call options on USD/CNH to prepare for further yuan depreciation in the upcoming weeks. The slowdown also poses challenges for industrial commodities. Copper prices, an important indicator of global manufacturing, have recently fallen below $7,800 per tonne, a level not seen in over a year. Buying put options on commodity-focused ETFs or major mining companies heavily reliant on China is a straightforward strategy. We remain cautious about equity indices with significant exposure to Chinese demand. Hong Kong’s Hang Seng index continues to underperform, and weaknesses are also evident in European markets, especially the German DAX. Selling futures on these indices or buying put spreads could provide a favorable risk-reward opportunity in the near term. The increasing uncertainty suggests higher market volatility. The VIX index has been gradually rising from its lows, recently reaching 19.5 as traders start accounting for more risk. We recommend buying VIX call options to directly benefit from growing market anxiety. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now