China’s April PMI data showed manufacturing stayed in expansion, helped by AI-related export demand, while domestic demand softened before the Labour Day holidays. Overall price pressures were contained, but raw material and producer prices in manufacturing remained elevated.
The CFLP manufacturing PMI was 50.3 in April (Bloomberg estimate 50.1), after 50.4 in March, marking a second month above 50. The private-sector RatingDog China manufacturing PMI rose to 52.2 (Bloomberg estimate 51.0) from 50.8, its fifth month above 50 and the highest since December 2020.
Manufacturing Strength And Domestic Demand Divergence
Non-manufacturing weakened, with the CFLP non-manufacturing PMI falling 0.7 points to 49.4 in April (Bloomberg estimate 49.8) from 50.1. Services slipped to 49.6 from 50.2, construction fell to 48.0 from 49.3, and the selling price index dropped to 48.1 from 49.9, alongside weaker new orders and export orders.
Industrial profits rose 15.5% year on year in 1Q26 (March: 15.8%; January–February: 15.2%). Gains were seen in non-ferrous metals, chemicals and telecoms, while profits fell in pharmaceuticals, motor vehicles and general-purpose equipment manufacturing in March.
Given the split between a strong manufacturing sector and weakening domestic demand, we should consider strategies that capitalize on this divergence. The resilience in the manufacturing PMI, now at 50.3, is clearly fueled by external AI-related demand, creating a distinct two-speed economy. This suggests a cautious but targeted approach is necessary for the weeks ahead.
We see opportunities in commodity markets tied to China’s industrial engine, specifically non-ferrous metals. With industrial profits up 15.5% in the first quarter and strong private manufacturing data, going long on copper or aluminum futures appears prudent. LME copper prices have already reflected this, climbing over 8% in the last month to breach $10,500 per tonne, a level not seen since early 2025.
For equity derivatives, a pairs trade strategy seems most appropriate, favoring industrial sectors over consumer-focused ones. We could buy call options on ETFs exposed to Chinese materials and telecoms while simultaneously buying puts on those heavy with consumer discretionary and auto stocks. The FTSE China A50 index has struggled to gain traction precisely because weakness in domestic consumption is offsetting export strength.
Yuan Range Bound And Options Focus
The outlook for the yuan suggests range-bound trading rather than a directional bet. Strong export orders provide support, but the weak services PMI at 49.4 and the possibility of future policy easing create downward pressure. The USD/CNH offshore exchange rate has remained in a tight channel between 7.28 and 7.32 for weeks, making it ideal for selling options strategies like strangles.
This economic picture echoes the trends we observed in 2025, where the government’s stimulus efforts were aimed more at shoring up production than directly boosting consumer spending. The current strength in AI-related exports is a powerful tailwind that wasn’t as pronounced last year, helping to insulate the industrial sector from softening domestic orders. However, with elevated input costs for producers, we must remain watchful for any margin compression that could disrupt this positive manufacturing story.
