China’s Consumer Price Index (CPI) showed signs of improvement, decreasing by -0.3% year-on-year in September, an improvement from -0.4% in August. The Core CPI, which excludes food and energy, hit a 19-month high of 1.0% year-on-year, up from 0.9% in August. While the CPI and Producer Price Index (PPI) showed less deflation in September, challenges remain due to US tariffs and low local confidence. Between January and September, the average headline CPI was -0.1% and the core CPI was 0.6%. The PPI averaged -2.8%. Predictions suggest the CPI will be -0.1% and the PPI -2.6% in 2025, with relief expected in 2026 as the government works to encourage spending.

China’s Economic Growth

China’s economic growth appears to be slowing down since early Q3 2025. It’s expected that real GDP growth will drop to 4.7% year-on-year and 0.7% quarter-on-quarter for Q3 2025, after adjustments. In response to ongoing uncertainties in US-China trade, accommodative monetary policies are anticipated. A 10-basis-point rate cut in Q4 2025 is possible, along with further cuts to the reserve requirement ratio. Today is October 15, 2025. China’s consumer price deflation improved slightly to -0.3% in September. However, the noticeable slowdown in the economy during the third quarter suggests underlying weaknesses. The main takeaway is that the People’s Bank of China will likely introduce more stimulus. Traders should brace for a rate cut in the fourth quarter, with a forecasted decrease of 10 basis points in the key lending rate. This monetary easing, along with a potential 50-basis-point cut to the Reserve Requirement Ratio, is intended to support growth. These moves could weaken the yuan, making long positions in USD/CNH through forwards or options a smart strategy.

Potential Stimulus and Impact on Markets

For equity derivative traders, the anticipated stimulus could lead to a short-term rise in Chinese stocks. Buying call options on indices like the CSI 300 or Hang Seng may allow traders to benefit from this potential increase. Yet, recent data from September show retail sales growth remains low at just 3.8%, indicating that confidence is still shaky, which could make any rally brief. Persistent deflation in producer prices, averaging -2.8% this year, indicates weak factory demand. This suggests a bearish outlook for industrial commodities sensitive to Chinese growth. Thus, considering shorting copper or iron ore futures could be a reasonable reaction to the ongoing slowdown in the industrial sector. In summary, the clash between weak economic data and the possibility of strong government stimulus is likely to make markets more volatile. Ongoing US tariff issues add further uncertainty, similar to the sharp market fluctuations during trade disputes in the late 2010s. Traders might explore strategies that leverage this volatility, such as buying straddles on major Chinese equity ETFs. Create your live VT Markets account and start trading now.

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