Insights 
VT 
China’s GDP expanded by 4.8% year-on-year in Q3, surpassing the market’s 4.7% expectation. The growth was driven by resilient exports, which added 1.2 percentage points to the GDP, while investment saw a sharp decline across various sectors, not just housing.
The report suggests domestic demand has weakened, influenced by reduced effectiveness of the goods trade-in programme and declining investment. Despite this, the 2025 growth forecast has been upgraded to 4.9% from 4.8%, due to the robust Q3 performance. However, Q4 growth remains forecasted at 4.4% year-on-year.
International Trade Dynamics
On the international scene, it is expected that the US-China tariff truce will be extended, as both nations have economic motivations for this. China may seek more than just a truce extension, potentially requesting the US to ease export controls and restrictions. In return, China might consider relaxing its rare earth export controls, given its central role in that supply chain. Mutual trade concessions appear possible to maintain the negotiations’ momentum.
Given the better-than-expected Q3 growth driven by exports, we see a complex picture for the weeks ahead. This export strength suggests a floor for the yuan, so traders might consider selling out-of-the-money puts on USD/CNH, anticipating that officials will want to maintain currency stability to support this one bright spot. However, the underlying weakness in domestic demand means any significant yuan appreciation is unlikely.
The plunge in domestic investment is a critical warning signal for industrial commodities. We have already seen this reflected in recent data, with China’s iron ore imports for September 2025 showing a 3.2% month-on-month decline, according to customs data released last week. This trend suggests traders should be cautious about long positions in copper and iron ore, and perhaps look at buying puts or establishing bear put spreads on related futures contracts.
This divergence between the external and domestic economies points to potential pair trading opportunities in the equity space. One could look at buying call options on the ChiNext index, which is heavy on export-oriented tech and green energy firms, while simultaneously buying puts on the Hang Seng Mainland Properties Index. This strategy aims to capitalize on both the strong export sector and the continued frailty in the domestic real estate market.
Economic Indicators and Market Strategies
The latest preliminary Caixin Manufacturing PMI for October, which came in at 49.8, reinforces the view of a slowing domestic economy heading into Q4. This figure, dipping back into contraction territory, suggests the government’s fiscal support measures have yet to gain traction. Consequently, we should anticipate increased volatility, making options that benefit from price swings, like long straddles on the FTSE China A50 index, an interesting proposition.
Looking ahead, the upcoming US-China trade negotiations, tentatively scheduled for early November 2025, are a major catalyst. Given China’s leverage with rare earth minerals, we could see sharp movements in related stocks and ETFs, such as the VanEck Rare Earth/Strategic Metals ETF (REMX). Buying call options on this ETF could be a way to speculate on China using this as a bargaining chip, a tactic we saw hinted at during the trade disputes of the early 2020s.
We recall the market whiplash from tariff announcements back in the 2018-2020 period, and this time the stakes are similarly high. The potential for a breakdown in talks, even if unlikely, means hedging is prudent. Holding long positions in volatility through VIX futures or options could provide a buffer against any surprise negative outcomes from the negotiations.
