Insights 
VT 
USD/CNH remains stable near 7.1260, while the Hang Seng China Enterprises Index increased by 2.4%. The Communist Party’s Central Committee has begun its four-day conclave, known as the Fourth Plenum, to establish China’s economic and technological goals for the next five years.
China’s GDP growth exceeded expectations, rising by 1.1% quarter-on-quarter, compared to the consensus of 0.8%. This follows a 1.0% rise in Q2, with an annual increase of 4.8% compared to 5.2% in Q2. Despite meeting growth targets, China’s long-term economic health faces challenges due to reliance on industry, particularly exports and manufacturing, while consumer spending remains weak.
Economic Performance and Indicators
For the first nine months of the year, retail sales growth was at 4.5% year-on-year, slightly below August’s 4.6%. Industrial production maintained a growth rate of 6.2% y/y. However, fixed asset investment unexpectedly shrank by 0.5% y/y, contrasting the consensus of a 0.1% increase, and was 0.5% in August. Excluding real estate, fixed asset investment increased by 3.0% y/y. It suggests that gradual currency revaluation could potentially boost consumer spending by making imports cheaper.
Looking at the situation on October 20, 2025, we see a familiar pattern in China’s economy that echoes the trends from a few years prior. China’s Q3 GDP data, released last week, showed year-over-year growth of 4.9%, slightly ahead of forecasts but still highlighting a persistent divide. The USD/CNH has been pushed up to the 7.28 level, reflecting underlying economic pressures that monetary stimulus has yet to resolve.
The main issue remains weak domestic demand, a problem we have been observing for several years. The latest data for September 2025 showed retail sales growth at a sluggish 2.8%, while the National Bureau of Statistics’ 70-city housing price index fell for the 14th consecutive month. In contrast, industrial production remains a bright spot, growing at 5.5% due to strong exports in sectors like electric vehicles.
Monetary Policy and Market Strategy
This dynamic places the People’s Bank of China in a difficult position, as further interest rate cuts to boost the property market risk weakening the currency. The PBoC seems committed to preventing a disorderly depreciation, creating a managed, low-volatility environment for the yuan. For derivative traders, this suggests that selling volatility on USD/CNH could be a viable strategy, using instruments like short strangles to bet that the currency will remain in a tight range.
Given the persistent weakness, we believe positioning for any surprise stimulus measures is also prudent. The government may eventually be forced into a larger support package to revive consumer confidence. A low-cost way to position for this outcome is through buying call options on beaten-down Chinese equity indices, such as the Hang Seng China Enterprises Index, which offers upside exposure if a policy shift finally sparks a rally.
