China’s economy is projected to expand by just under 5% in the third quarter. This comes amid concerns over potential slowdown pressures as the year-end approaches.
There may be intensified calls for new policy easing to bolster growth through the winter months. Although Beijing has implemented targeted support measures recently, current data indicates a possibility of demands for a more robust stimulus response.
Projected Economic Slowdown
With third-quarter growth projected to be just under 5%, we are seeing renewed pressure on Chinese-linked assets. The recent Caixin Manufacturing PMI for August 2025, which dipped to 49.8, confirms this softening economic momentum. This has already begun to weigh on indices like the Hang Seng and the CSI 300 over the last few trading sessions.
We are seeing this slowdown reflected in the currency markets, with the offshore yuan (USD/CNH) weakening past the 7.32 level this month. Consequently, derivative plays on commodities sensitive to Chinese demand, such as iron ore and copper, should be considered. Traders could look at buying puts on commodity-heavy ETFs as a hedge against further industrial weakness.
The key variable now is the potential for a forceful policy response from Beijing, creating significant uncertainty. This tension is causing implied volatility to rise, as seen with the CBOE China ETF Volatility Index (VXFXI) ticking up nearly 15% in the past two weeks. This suggests strategies like long straddles on major Chinese ETFs could be effective, as they profit from a large price move in either direction.
Potential Policy Response
Looking back, we saw similar slowdowns in late 2023 and 2024 that were met with cuts to the bank reserve requirement ratio (RRR) and key lending rates. Therefore, we should be closely watching for any announcements from the People’s Bank of China in the coming weeks. A surprise inter-meeting policy move is now a distinct possibility and could serve as a major catalyst for the market.
