China has unveiled a comprehensive strategy to energise services consumption amidst a deceleration in economic growth. The plan, formulated by nine key agencies, including commerce and finance ministries, focuses on opening internet, culture, telecommunications, medical, and education sectors to more foreign and private investment. Particularly, there will be a focus on mid- to high-end healthcare, leisure, and tourism.
Fostering the Sports Economy
Emphasis is also given to fostering the sports economy through international events and competitions. For these efforts, central government funds and local special bonds will support infrastructure projects in cultural, tourism, elderly care, childcare, and sports facilities. Banks will be encouraged to expand credit to service-sector businesses through monetary policy tools.
This initiative is in response to lacklustre growth in factory output and retail sales. Present efforts include interest subsidies for service industries and a commitment of 231 billion yuan ($32.5 billion) in special treasury bonds for consumer appliance and electronics trade-ins. The focus on services consumption comes amid challenges like U.S. tariffs and an economy-wide slowdown.
China aims to pivot towards domestic demand, with targeted measures in culture, healthcare, and tourism. While these sectors could stabilise, persistent weaknesses in factory output and retail sales suggest ongoing growth challenges, hinting at possible future stimulus actions.
Given the targeted nature of this stimulus, we should not expect a broad market rally but rather a rotation into specific sectors. The weak August factory and retail sales data, which showed year-over-year growth slowing to just 2.8% and 2.1% respectively, will likely cap the upside for major indices like the FTSE China A50. Traders could consider selling out-of-the-money call options on broad industrial ETFs to hedge against continued macro weakness.
Opportunities in Domestic Services
This policy clearly favors domestic services, creating opportunities in consumer discretionary and healthcare stocks. We are looking at buying call options on companies in the tourism and leisure space, as they are direct beneficiaries of this government spending push. For instance, options volume for major online travel agencies has already surged this morning, September 17th, signaling bullish sentiment.
The continued weakness in the industrial sector, confirmed by the latest Caixin Manufacturing PMI which fell to 49.2 for August 2025, remains a significant concern. This divergence between service-sector support and industrial sluggishness suggests a complex environment. We believe buying protective put options on ETFs tracking Chinese materials and heavy industry could be a prudent way to manage risk.
Looking back at similar stimulus attempts in 2023 and 2024, the market impact was often front-loaded and short-lived. This time, the use of special treasury bonds for infrastructure is a notable development, but we remain cautious until we see a sustained rebound in consumer confidence. Volatility is likely to increase as the market digests whether these measures are enough to counter the broader slowdown.
The central bank’s involvement without a major rate cut indicates a preference for targeted credit expansion rather than broad monetary easing. This should help stabilize the offshore yuan (CNH) around the 7.35 level against the dollar. We see an opportunity to sell CNH volatility, as policy aims to support growth without triggering significant capital outflows.
