China’s Growth Target Reached China successfully met its 5% growth target for 2025. Growth in the fourth quarter matched market expectations, driven by strong exports and manufacturing, while the services sector helped provide stability. Nonetheless, domestic demand has weakened, particularly due to falling investments, which may require additional government support. China’s GDP grew by 4.5% year-on-year in Q4, helping achieve the 5% goal for 2025. Industrial output thrived thanks to exports, which rose by 5.5% for the year. This resulted in a goods trade surplus of about 6% of GDP. Exports added 1.6 percentage points to growth, with the services sector also contributing. However, investments have declined outside of housing, and consumption has dropped as the effects of a goods trade-in program weakened, despite solid income growth. By year-end, deflationary pressures had eased, but mismatches in supply and demand could still impact industrial profits and investment. New loans in Chinese Yuan decreased for both households and businesses. The ongoing decline in housing investment and falling home prices have lowered consumer confidence. Economic Transformation Ahead Growth is expected to be 4.6% in 2026, although the target may be adjusted to between 4.5% and 5.0%. The government is likely to emphasize economic transformation for sustainable growth, focusing on high-tech and green industries while promoting service sector consumption. Since China’s growth in 2025 was fueled by exports while domestic demand declined, we anticipate a split market moving forward. The persistent weakness in the property sector, with new home prices falling for the tenth consecutive month in December 2025, poses risks for construction and banking-related assets. We should consider protective put options on ETFs that track Chinese real estate and financial firms. The record goods trade surplus in 2025 creates a complex scenario for the yuan. While a surplus generally strengthens a currency, weak domestic data and potential policy easing by the People’s Bank of China might create challenges. This suggests a strategy of selling yuan volatility, as authorities are likely to pursue currency stability to support exporters without alarming capital markets. We expect any new stimulus to be carefully targeted, steering clear of the previous property-led growth model. The focus on high-tech and green industries indicates possible opportunities in call options for specific semiconductor and electric vehicle stocks. Conversely, futures contracts for industrial commodities like iron ore may continue to feel pressure from falling investments. Deflationary pressures, confirmed by December 2025’s Consumer Price Index showing a 0.5% year-over-year decline, make monetary easing highly likely. The significant drop in new loans in Q4 2025 underscores the urgency to reduce borrowing costs. We should strategize for lower interest rates by considering long positions in Chinese government bond futures. Create your live VT Markets account and start trading now.

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