Stay calm and don’t panic. Sound advice. But it appears no one is listening to Yi Gang, the People’s Bank of China governor. As fears grow of a trade war between Beijing and Washington, the world’s second-largest economy is suffering a severe attack of ‘jitteritis.’
Last week, Yi called for investors to “remain calm” after the benchmark Shanghai Composite Index dropped 3.78%, dipping below the psychological 3,000-point barrier, while the Shenzhen Component Index plunged 5.31%.
Since then, Shanghai has entered bear-market territory, plummeting more than 20% from January highs. On Wednesday, it fell another 1.1% as trade tensions between China and the United States increased, and the renminbi, or yuan, weakened.
To cap a miserable 24 hours, the blue-chip CSI300 index dropped 2.1%, crossing into the world of bear markets. On Thursday, the Shanghai Composite continued its decline, edging lower by 0.9% to close at 2,785.98 points.
All this has made a mockery of Yi’s rare response to this unfolding drama. “Stock markets fall and rise,” Yi said in a statement on the PBOC’s website. “Investors should keep calm and rational,” the head of the country’s de-facto central bank added.
In the past month, market sentiment has started to evaporate after the Chinese government’s sustained battle against debt forced up borrowing costs for businesses. This, in turn, has acted as a brake on the economy.
Coupled with that has been the US-China slugfest, which is looking increasingly like a ‘war of wills’ between President Donald Trump and President Xi Jinping.
Market volatility
Yet stock market volatility and a sustained slide in the renminbi could pose problems for Beijing amid signs of weakening domestic demand, and trade disputes with the US and the European Union.
“We need to adopt bottom-line thinking and draft all types of contingency plans to take targeted measures [to] appropriately deal with the trade friction [with the US],” Wang Yiming, a vice-minister at the Development Research Center of the State Council, an influential think tank, said earlier this week.
For the former deputy secretary-general of the National Development and Reform Commission, the country’s main economic-planning agency, the “Sino-US dispute is the biggest uncertainty,” along with concerns that “export growth in the second half of the year could decline.”
Last month’s data was mixed with exports defying market expectations. But figures released by China’s National Bureau of Statistics revealed retail sales rising by just 8.5%, the slowest pace of expansion since June 2003.
Another key driver of economic growth also showed that infrastructure spending slowed to 9.4%, while fixed-asset investment, a major indicator of domestic demand, was a mere 6.1% between January and May compared to the same period in 2017.
Again, this was the slowest growth since figures were first released in February 1998. “[This was] very worrying,” Wang pointed out, adding that it could be the start of a long-term trend.
Just as “worrying” was a leaked report from the National Institution for Finance & Development, a state-backed think tank, which warned of a potential “financial panic” in the world’s second-largest economy.
Bond defaults, liquidity shortages and market turmoil were highlighted during a period of spiraling trade tensions, a study by NIFD stated.
The report was seen by Bloomberg and Reuters news agencies, and was confirmed by a National Institution for Finance & Development official.
“Financial panic is a type of extreme and collective aversion to risk,” NIFD pointed out in the study, which appeared briefly online before being removed on Monday. “Its occurrence does not mean large-scale financial risk has emerged but is indicative of the apprehension and fear on the part of market participants towards the market’s outlook.
“Preventing its occurrence and spread should be the top priority for our financial and macroeconomic regulators over the next few years,” it added.
The National Institution for Finance & Development stressed that leveraged purchases of shares are reaching levels last seen in 2015. When the bubble burst three years ago, US$5 trillion was wiped off the value of Chinese equities.
Key concern
“We failed to clean up the leveraged funds after the 2015 market rout [and] they have staged a comeback in a new guise,” the NIFD, which admitted the report had been compiled but said it was being used for internal discussions, added.
A key concern is whether targeted policy support will shore up market sentiment when broader monetary loosening appears to be off the table. “A trade war may bring pressure on Chinese exports, triggering yuan depreciation. Thus the PBOC cannot cut rates,” Yun Xiong, a partner at Leiton Capital in Shanghai, told Reuters.
Options could include incentives to boost domestic demand to compensate for weaker exports, including expanding the government’s annual budget deficit.
In April, the Communist Party’s Politburo, a leading decision-making body, decided to backtrack and add “expanding domestic demand” to a policy statement after dropping it in December.
China could also provide financial assistance in state loans for companies switching from US markets. “We should develop other markets to substitute for the US market,” a policy insider told Reuters. “[But] we need time to [do that].”
In the meantime, the clock appears to be ticking.
Or we can say HK police is there to protect and to serve. US police is there to assert authority and intimidation, that’s why the US police wears Nazi style black shirts and is armed to the teeth with a mission to shoot first and ask later.
When there is a shoot rampage, it is a publicity op for every big shoots in the police, fire department and city politicians to show their faces on the TV; hay, it is once in a life time perk as a bureaucrat.
Singapore is a good example for HK to learn to stop those LBFB running amok in HK, deporting them after lashing those illegal LBFB is an effective deterence. If HK does not want to be a ghettos like Munich or Utrecht, this tough action has to be taken.
Develop new markets and increase trade with existing trade partners. Why do business with someone who can spit on your face and easily turn their back on you. Now, the world knows. It is very risky to be friends with America. They turn easily.
Nonsense! America doesnt turn its back on anyone. You play fair and by the rules, America is your best friend. Years and Years of currency and market manipulation, intellectual property theft, and product dumping by China has led to this. The US has been the recipient of this theft and poor business behaviour. It flourished under Obama who didnt care one bit. Trump asked for free and fair trade and everyone thumbed their noses at him because they expect america to be the whipping boy of global trade. Well amigo, new sheriff = new law. China will buckle and free and fair trade will be back on the table.
Shunkleash Mkay you absolutely right. China is a greatest cheater and not doing fair in so-called balance trade partnership..The US was taken advantaged evidence by China’s big surplus with US. It is about time that US should totally get out of China’s cheating tactics that should include big countries like EU members to contain its cheating activities.
All I guess, was the cause of UNBALANCED trade with the USA..Theirs fundamental WEALTH is not grounded on the SOLID GROUND..JZ imagine they go easy and made themselves VERY WEALTHY for the EXPENSES of other CIUNTRY E.U most to USA..A lost if 500BILLION of trade deficit..Is this the KIND of FAIR and FREE TRADE..NOW the usa atleast BALANCE it,it CAUSE PANIC..
The world is waiting for the chineCh bubble to burst.
Ralph is a China bootlicker. Look at his profile.
Yes Anil,let we see how China’s economy burst like bubbles. USA one of its biggest trade partner should contain its trade cheating tactics. China is thinking of its own interest without thinking the interest of its trade partner and taking advantage of its own success gained previously. China is manufacturing of everything cloned from others technology.. Exporting of finished goods is one of its biggest revenue earner contributing to its economy. Countries like USA and countries should stop importing Made in China goods and let China learn its lesson.
Allen Padua Guilon the big difference between india & China economy is that Indian produce is mostly consumed in house where as China depends on exports. Therefore, it’s important for China to help others so that it’s market does not get hit.
Anil Tiwari well said,they are dumping all there products abroad especially USA its biggest partner and with biggest surplus accumulating to 500 billion US dollar. Now US wants to balance this surplus by exporing US products to China, the problem is so many restrictions and tariff to US products to enter China. As if not a free trade partnership. India is doing fair to its trading partners. The best way now is to boycott all Made in China products the earner of its surplus and economy… Let the cheater learn its lesson and the greedy who claim to own the whole south China sea..
AMAZING, MOST OF THE COMMENTS ON THIS ARE PRO AMERICA. VERY GOOD, AND THAT IS ALL ARE TRUE.AMERICA IS THE WORLD DRIVER OF ECONOMY AND NOT BY CHINA. GOOD MR TRUMP, MAKE THE TRADE WAR WITH CHINA MORE TIGHTER
It is very obvious and even primary schooler could understand this matter. Don’t let the greedy and selfish country countinue its cheating tactics and greedy activities. Let all nations of the world boycott made in China products and let learn its lesson.
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You can not figure it out to whom you should siding. China is obviously not playing fair with its trade partner USA. US products have difficulty to export to China due to some restrictions. While China export to US freely. Example is automobiles of all sort. Manufacturers of automobiles must have a co partners Chinese manufacturers for to allow there automobiles to be exported in China. This co partnership means a trnsfer of technology to chinese msnufacturers. No wonder that we can find a lot of popular automobiles brands cloned and re badged with chinese brands.. Example of this GM,an American automobile manufacturer. It cannot export its brand Cadillac,Chevy, Buick to China without its co partnership local chinese manufacturers wuling,faw and so and so.. A transfer of GM technology to local chinese manufacturers is taken for sure..That is how wise China is..It can msnufacture now an automobiles with its own brands out of technology of others. Trump is very correct about this matter.
Allen Padua Guilon , you are right. Indian software and pharmacy products have restrictions in China even though India I’d a world leader in these items.
Listen and deal
Allen Padua Guilon yeah, thats is true sir
I do not know why U.S.A. took so long to understand. They were being taken advantage of and very badly.The previous Governments were just busy fighting wars and being fooled.
Trump has taken the right business decision. He may be a little brash but he knows what he is doing.
Kier Valdez obviously,China wants to conquer the world in all aspects….
Anil Tiwari yes because they are not totally opening there market to other countries like India. They are not actually practising the free-trading. A cheater, that is why US is trying containing this activity China doing unfair trade practice causes unbalanced surplus gain in favor of China.
Previous passed US presidents dif not care gor this big problem. As you said they were just busy engaging in war,war,war…Americans should thanks Trump,the true pro American. He fixes the messy leave by previous administrations. Who cares the critics of Trump. Majority of Americans are still confident with Trump as I beleive. He trying hard to put America in the right direction…
Allen Padua Guilon , yep China has a trade surplus of $ 60 billion with India.
OBAMA’ biggest failure is tackling with the psycho Chinese.
He failed to avert Chinese dumping
He failed to avert Chinese island building in the SOUTH CHINA SEA, which Chinese did against to the internationally accepted rules.
President Trump stood against to all the injustice and immoral acts against the US. Keep going, dear Trump.
Anil Tiwari enjoy your wishful thinking. The Chinese economy is far stronger in fundamental s than US
Tmadhava Menon , ha ha days not far off when we’ll have the last laugh.
At least friend, you are one of believing the advocacy of Trump. America this time got the right president to its people. He tries to put back his country to right track. But still his critics put him down instead of supporting him.
Tmadhava Menon yes at this point of time,but if US its biggest single business trade partner will totally close its trading with China,a big blow to its economy will be happening. US is still the biggest user of Made in China products if you don’t know…
You want to take over the world? You want be a superpower greater than the US? Then play like a super power, behave like a superpower. China is yet to feel how to play the game of the superpowers. Welcome to reality, China have bitten more than what it could chew
bubble will burst soon!
Shunkleash Mkay , I agree with your commentary. This indicates that the action done by President Trump in inreasing tariff rate on some Chinese products is working well for the best interest of America. Democrat supporters and some Amercan athletes should stop criticizing President Trump as the strategy of President Trump to correct the trade with China appears working based on jittery of Chinese economy now. The impact may soon destabilize Chinese economy. Support your President now !!!!
We will see,the ambitious China who wants to conquer the world by all means.