China Stocks fall 1% ahead of US tariff on Chinese goods

Headline shares of the Mainland China equity market ended lower on Wednesday, 04 July 2018, as uncertainty over trade policy was still hanging over markets, outweighing reports that nation's central bank vowed to keep the currency stable and not to deploy it as a weapon in the trade conflict with the U.S. Many investors fear Washington will go ahead with its plan to impose tariffs on $34 billion worth of Chinese goods on July 6, which Beijing has vowed to match with tariffs on U.S. products, raising the risk of a full-blown trade war. At the close, the benchmark Shanghai Composite Index declined 1%, or 27.76 points, to 2,759.13, while the Shenzhen Composite Index, which tracks stocks on China's second exchange, fell 2%, or 31.24 points, to 1,563. The blue-chip CSI300 index slipped 1.34%, or 45.53 points, to 3,363.75.

The uncertainty over trade policy was still hanging over markets. Planned tariffs on up to $34 billion on Chinese products are set to go into effect on Friday. The Trump administration was seen as keeping the U.S.-China tensions alive after late Monday saying it seeks to block China Mobile from operating in the U.S. market. The White House cited national security interests as the reason for refusing China Mobile access to the U.S.

However, some investors elected to return to the market after the nation's central bank vowed to keep the currency stable and not to deploy it as a weapon in the trade conflict with the U.S. The onshore yuan slipped past the 6.7 per U.S. dollar mark yesterday for the first time in almost a year, prompting what traders described as efforts by State-owned banks to prop up the currency as anxieties over U.S. trade frictions deepened. The yuan fell to 6.7204 per U.S. dollar, its weakest since Aug. 7, 2017 and the first time it dropped below 6.7 since Aug. 9, 2017, before recovering to 6.6997 per U.S. dollar. The currency has lost more than 4 percent of its value against the U.S. dollar since mid-June.

Chinese media yesterday called a recent selloff on mainland stock markets an irrational overreaction and urged investors not to panic over the Sino-U.S. trade frictions. The Securities Daily newspaper called the slump in the A-share market an overreaction, saying that investors should have confidence in China's domestic market and that the current macroeconomic situation was stable. Li Yang, director-general of government think-tank National Institution for Finance and Development, told the Global Times newspaper that he did not think the financial panic would evolve into a wider financial scare and that authorities had proven effective in the past to pacify market sentiment

ECONOMIC NEWS: China's exports to the United States rose 3.8 percent from a year earlier in yuan terms in June 2018, lower by 23.8 percentage points than the growth rate seen a year earlier, the country's customs agency said on Monday. For the first half of this year, customs said China's exports to the United States rose 5.4 percent from a year earlier compared with 19.3 percent for same period in 2017.

CURRENCY NEWS: The Chinese yuan surged against the dollar on Wednesday, continuing a recovery that began the previous afternoon after the People's Bank of China governor assured markets the central bank would keep the currency stable. People's Bank of China Governor Yi Gang said in a statement on Tuesday that the central bank was closely watching fluctuations in the foreign exchange market and would seek to keep the yuan at a stable and reasonable level. Around late afternoon, it was trading at 6.6242 yuan per dollar, 0.3 percent stronger than the late night close on Tuesday.

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