Chinese stocks down 2.5 per cent today as tariff deadline looms
Chinese stocks took another battering today as new tariffs from both Washington and Beijing will take effect this week.
China’s benchmark Shanghai Composite Index closed down over 2.5 per cent – the worst start to the second half of a year since 2015.
And losses rippled across Asia with Japanese and South Korean markets both closing more than 2 per cent weaker.
Asian stock markets are suffering from mounting Sino-US trade tensions. From Friday, tariffs by both countries on products worth $34bn (£25.9bn) will be in place.
Additional tariffs are then expected to kick in as Trump has threatened punitive taxes on as much as $450bn of exports from China – threats to which China has vowed to retaliate.
The potential economic damage of these measures has far-reaching consequences. In Asia, it is bad news for export powerhouses such as Taiwan, South Korea and Malaysia, which sell goods to China that are used to make products exported to the US.
“Asia has much to lose given that the US is the region’s biggest export market and that emerging market Asian economies are the largest exporters globally” analysts at TD Securities told the Financial Times.
Read more: Five reasons Chinese stocks have fallen over 20 per cent since January
China’s stock slumps came alongside a further weakening of its currency, the yuan, which last month had its worst level against the US dollar on record. As a large amount of Chinese debt is denominated in US dollars, debt repayments become increasingly expensive with a weakening currency and can stimulate capital flight.
And there are other factors weighing on Chinese bourses. A drop in infrastructure spending is driving down demand for China’s manufacturing sector.
Stricter regulations and a crackdown on irresponsible lending in China has also hurt sentiment for smaller companies as well as stock and property investors, Bloomberg reported.
By mid 2017, China’s debt was more than two and a half times the value of the entire Chinese economy, according to the Bank of International Settlements, and a slowdown in infrastructure investment has been part of measures taken to resolve the debt problem.
Read more: China cuts investment in the US by over 90 per cent