China’s January PMIs showed divergence, as the official NBS manufacturing index dropped to 49.3, while the private RatingDog measure rose to 50.3. The variation is attributed mainly to export orders influencing the indices differently.<\/p>\n
The contrasts in the PMIs suggest a two-speed economy, characterised by strong exports and technological advancements on one side and weak domestic demand on the other. This reflects China’s struggle to balance these differing economic forces.<\/p>\n
From our perspective in 2025, we first identified a two-speed recovery in China based on diverging PMI data. This trend has continued, with official January 2026 figures showing manufacturing PMI at a sluggish 49.2, while export-focused metrics remain stronger. This reinforces the view that the economy is being pulled in two different directions.<\/p>\n
The export sector continues to be the bright spot, a pattern we have observed for over a year now. China’s exports grew by a surprising 2.3% in December 2025, beating expectations, driven by strong global demand for its electric vehicles and technology. Traders should consider long positions on the offshore yuan (CNH) or call options on China-focused tech ETFs that benefit from this external strength.<\/p>\n
Conversely, the domestic economy remains weak, dragged down by the ongoing property crisis. Property investment in China contracted by 9.6% for the full year of 2025, and consumer confidence remains low, which suppresses domestic spending. This suggests that put options on indices heavily weighted towards Chinese real estate or domestic consumer brands could be a logical hedge.<\/p>\n
This clear divergence calls for pair trading strategies in the coming weeks. We could look to go long on assets tied to China’s export machine while simultaneously shorting those exposed to its internal economy. For example, a trade that is long a basket of Chinese EV makers and short a basket of property developers could capitalize on this two-speed reality.<\/p>\n
The conflicting economic signals also imply that volatility may be mispriced. Any unexpected policy move from Beijing to stimulate domestic demand could cause a sharp market reaction. Therefore, strategies that profit from a big move in either direction, such as buying straddles on the FTSE China A50 Index, warrant consideration.<\/p>\n
This economic split is also evident in commodities. We see sustained demand for industrial metals like copper, essential for export manufacturing, while iron ore demand remains suppressed due to the construction slowdown. Derivative trades that favour copper prices over iron ore could effectively play this widening gap.<\/p>\n
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