China’s recovery lost pace in April after stronger Q1 data. Industrial production slowed to 4.1% year on year, the lowest level in nearly three years, and fixed-asset investment contracted.
Domestic demand stayed weak. Retail sales rose only 0.2% year on year in April, linked to lower spending on big-ticket items such as vehicles and home appliances.
Domestic Demand And Confidence
Labour market conditions worsened for younger people, with youth unemployment rising. Household caution remained widespread, which weighed on consumption.
Property price falls eased slightly, suggesting early stabilisation. These measures may take time to reach household confidence.
Raw material costs increased and added pressure to factories. Policymakers were described as taking a wait-and-see approach, with targeted fiscal and monetary support more likely in H2 unless weakness continues.
The economic momentum we saw in the first quarter has clearly stalled, with April’s data showing significant domestic weakness. Industrial output and investment are slowing, which points toward a cautious stance in the coming weeks. For now, this suggests considering strategies that benefit from lower growth.
Market Implications For Traders
This slowdown is directly impacting commodity markets, as China is the largest consumer of industrial metals. We’ve seen copper prices on the London Metal Exchange fall by over 5% in the last two weeks to near $8,200 a tonne, reflecting this weakened demand outlook. Derivative traders should anticipate further softness in raw material prices if this trend continues.
The weakness in consumption and the central government’s patient policy stance are also weighing on the currency. The offshore yuan has already slipped past 7.30 to the U.S. dollar, a key level we last saw tested in late 2025. This trend supports positions that anticipate further yuan depreciation against the dollar.
This environment of slowing growth and policy uncertainty will likely increase volatility in Chinese-linked equities. Options traders may find opportunities in strategies that profit from price swings, rather than just directional bets, as markets react to every new piece of data. The lack of immediate government stimulus removes a key support for stock indices for the time being.
We saw a similar pattern last year in 2025, where a mid-year slowdown was eventually met with targeted support in the second half, causing a sharp rally in assets. While the current data justifies a bearish bias, we must remain alert for any signals of policy intervention from Beijing. Any surprise stimulus announcement could quickly reverse these short-term trades.
The most recent data confirms this view, with the early May Caixin Manufacturing PMI dipping to 49.8, indicating a slight contraction. This reading reinforces the idea that the weakness from April is carrying over. This suggests that bearish positions remain favorable for now, pending a decisive policy shift.
