China Outlook: Data, Demand, and Policy Drive Market Mood

The Chinese economy continued to face intense scrutiny in early November, despite the Trump-Xi trade truce. Recent Chinese economic indicators have raised red flags, signaling waning external demand, a key component of China’s economic growth model.

Fading external demand for Chinese goods could force Beijing to expedite its plans to transition from an industry-led to a consumption-driven economy. Yet trade developments and price wars could challenge efforts to boost domestic demand, which aim counter weaker overseas demand.

Despite the export slump, investors are betting that Beijing’s next move could reignite growth, sending Mainland China equity markets close to their 2025 highs. Investor optimism stems from anticipated policy support rather than export strength.

China’s Exports to the US, Canada, Russia, and South Korea Plunge

Chinese exports fell 1.1% year-on-year in October after soaring 8.3% in September. The drop in exports was the first since March 2024, underscoring the effect of US trade policy and a weakening global demand backdrop.

The Kobeissi Letter commented on October’s trade data, stating:

“Shipments to the US plunged -25.1%, marking the 7th consecutive monthly drop. This was partially offset by a 3.1% increase in shipments to the rest of the world. Exports to the EU increased just 1.0%, the slowest pace since February, while shipments to South Korea, Russia, and Canada all fell by double digits. China’s export momentum is fading.”

October’s trade data aligned with the RatingDog China General Manufacturing PMI, which signaled a loss of momentum in the early fourth quarter. The headline PMI dropped from 51.2 in September to 50.6 in October, barely holding above the 50 neutral level. Significantly, new export orders fell at the fastest rate since May. Fading external demand forced producers to cut export charges for the first time in six months, despite rising input prices.

Higher input costs and lower export prices can erode margins, potentially leading to lower wages and job cuts. Crucially, a deteriorating labor market could offset Beijing’s efforts to boost private consumption.

Forex Markets Draw Interest as China Faces Trade Crossroads

Weaker exports to the EU came despite favorable RMB/EUR trends, another red flag for Chinese goods producers looking for alternative markets to the US. The EUR’s 8.93% rise against the yuan this year has made Chinese exports more price-competitive in Europe.

Notably, EUR/CNY trends contrast sharply with USD/CNY, which has fallen 2.43% year-to-date in 2025. The Chinese Yuan has remained relatively steady against the US dollar despite the US-China trade war and elevated US tariffs on Chinese goods. If a weakening Yuan against the EUR can’t boost demand from the EU, Chinese manufacturers could be running out of alternatives.

Natixis Asia Pacific Chief Economist Alicia Garcia Herrero commented on the RMB, stating:

“The RMB remains weak, especially against the EURO. Asia increasingly using the exchange rate for its external resilience.”

China Deflationary Pressures Ease: Temporary or a Shift?

While China’s PMI data and export trends suggest rising cost pressures, October’s consumer and producer prices raised hopes of ending the deflationary backdrop.

Consumer prices rose 0.2% year-over-year in October after falling 0.3% in September. Meanwhile, producer prices fell 2.1%, following a 2.3% drop in September.

The headline data suggested a pickup in consumer demand, easing deflationary pressures. However, economists were wary of the October data as the National Day and Mid-Autumn Festival may skew demand and prices.

Garcia Herrero commented on the October figures and the ongoing uncertainty about domestic demand, stating:

“It shows there’s at least stabilization in consumer sentiment. We need to check whether this trend continues for November and December data.”

Upcoming Chinese economic data will provide further insights into whether domestic demand can fuel inflationary pressures. These will be key for margins and the labor market.

Amid these mixed economic signals, equity markets remain sensitive to incoming data and policy cues.

Mainland Equities: Momentum Builds

Mainland China’s equity markets eased back from their current-year 2025 highs on Tuesday, November 11, as investors await incoming data for fresh clues on whether Beijing can achieve its 5% GDP growth target for the year.

The CSI 300 and the Shanghai Composite Index fell 0.65% and 0.33%, respectively, in early trading. Despite the morning losses, the indices have gained 18.57% and 19.49%, respectively, year-to-date. For context, the Hang Seng Index has soared 32.54% YTD.

Hovering close to their October 2025 highs, upbeat data could boost sentiment, potentially driving new highs. However, policy measures aimed at increasing consumption and supporting the housing market could be key if all-time highs are to be tested. The US–China trade truce also remains an important factor for market sentiment.

China Beige Book commented on developments since the Trump-Xi handshake, stating:

“The problem with handshake agreements is that they’re not worth the paper they’re written on.”

The comments followed reports of Beijing suspending some export restrictions on critical minerals, while retaining others.

Outlook: China Data in the Spotlight

With market focus firmly on China, upcoming economic data will continue to face scrutiny, potentially influencing Mainland equity market trends.

On Friday, November 14, retail sales, unemployment, industrial production, and house price data will require consideration.

Weaker retail sales, rising unemployment, falling house prices, and weaker industrial production would signal a further loss of economic momentum in October. Weak data could fuel speculation about Beijing rolling out additional measures to bolster the economy. While this may cushion the downside for Mainland-listed stocks, the absence of stimulus could derail the 2025 rally.

On the other hand, better-than-expected data may raise expectations of Beijing weathering the Trump storm, lifting Mainland China equity markets.

Discover strategies to navigate this week’s market trends here.