China’s M2 money supply increased by 8.8% year-on-year in August 2025, meeting previous figures and slightly exceeding the expected 8.7%. This reflects the growth in the broad measure of money circulating in the Chinese economy.
New yuan loans for August reached ¥590.0 billion, falling short of the ¥800.0 billion anticipated and showing a shift from the previous month’s negative ¥50.0 billion. Beijing plans to introduce subsidies to generate trillions in new loans aimed at stimulating domestic spending and improving demand.
Weak Credit Demand
The August loan data is a clear disappointment, showing that credit demand remains sluggish despite some stability in the money supply. This weakness puts immediate downward pressure on Chinese equities and industrial commodities like copper. For us, this reinforces a cautious short-term outlook on China-exposed assets.
This pattern isn’t new; we saw similar softness throughout 2023 and 2024 when the property sector struggled to find a bottom. For example, official data showed that property investment had fallen over 9% in 2024, a trend that has clearly been difficult to reverse. This consistent weakness suggests any recovery is fragile and prone to setbacks.
However, the key takeaway is the expected government stimulus, which creates a major binary event for the market in the coming weeks. This uncertainty between poor current data and potential future support is perfect fuel for higher volatility. We think buying options strategies that profit from a large price swing, like straddles on the Hang Seng Tech Index, could be a smart way to play this.
Immediate Term Strategy
In the immediate term, the weak credit figures suggest puts on iron ore futures or commodity-linked currencies like the Australian dollar could work. Conversely, any concrete stimulus news could trigger a sharp rally, making longer-dated call options on major Chinese tech stocks attractive for those positioning for a rebound. The timing of the government’s announcement is now the most critical factor for our trading desks.
