Yi Gang, the governor of the People's Bank of China, has tried to reassure investors. Photo: AFP / Wang Zhao
Yi Gang, the governor of the People's Bank of China, has a US banking problem. Photo: AFP / Wang Zhao

Panic? What panic. After Tuesday’s meltdown on the Shanghai Composite Index which dipped below the crucial 3,000 points barrier, People’s Bank of China governor Yi Gang called for investors to “remain calm.”

In a rare response from the head of the country’s de-facto central bank, he also pledged to continue to inject liquidity into the financial system as trade tensions increased between the United States and China.

“Stock markets fall and rise,” Yi said in a statement on the PBOC’s website. “Investors should keep calm and rational.”

He made his remarks after the benchmark Shanghai Composite Index dropped 3.78% and the Shenzhen Component Index plunged 5.31% earlier this week.

Investors in China, as well as the rest of Asia, the US and Europe, have become jittery as the tit-for-tat trade row between the world’s two largest economies escalates following the decision by US President Donald Trump to roll out another round of planned tariffs on US$200 billion of Chinese imports.

With this latest shot across Beijing’s bows, Trump has now threatened to increase duties on a range of products worth up to $450 billion.

Ballooning debt

At the heart of the dispute is the ballooning deficit between the US and China, as well as concerns about intellectual property rights in high-tech industries.

Last month, the figure swelled to $24.6 billion, while between January and March, it was $58 billion.

In 2017, the US trade deficit with China hit a record $375.2 billion, with the world’s second-largest economy importing American goods worth $129.8 billion compared to exports of $507.4 billion, Washington data showed.

“The fundamental reality is that talk is cheap,” Peter Navarro, the White House trade advisor, told the media in a  conference call, adding that China “may have underestimated the strong resolve of President Donald J. Trump.”

“If they thought that they could buy us off cheap with a few extra products sold and allow them to continue to steal our intellectual property and crown jewels, that was a miscalculation,” he added.

Still, this war of words has triggered a backlash from China’s state-run media. The normally moderate China Daily came out with a rabid attack on the White House’s decision to ratchet up the pressure.

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In a hard-hitting editorial, it stated:

“Faced with this heightened intimidation from the US, China has no choice but to fight back with targeted and direct measures aimed at persuading the US to back off, since it appears that any concessions it makes will not appease the Trump administration, which wants to suck the lifeblood from the Chinese economy.

“By announcing its plan to impose tariffs on more Chinese goods, the US has escalated its trade assault on China. Beijing will have to ensure that Washington is aware that there will be a heavy price to pay [on] every action it strikes against China if it is to avoid being a victim of the Trump administration’s growing bloodlust.”

Global Times, which is run by the Communist Party’s official mouthpiece, the People’s Daily, was slightly more muted, pointing out that there would be “no winners” in a trade war.

Branding the US as “arrogant,” it stressed that Washington’s policy would not sap China’s resolve.

“It is US arrogance to believe that a trade war will exhaust China,” Global Times said. “But the boot is on the other foot. Trade is mutually beneficial to both the US and China.

“Scuppering bilateral trade would cause similar suffering to both sides. This simple truth can never be wrong,” it added.

‘Common enemy’

The People’s Daily was less charitable, marching to a different drumbeat when it stressed:

“Everyone is joined in opposition against the common enemy supporting the [Chinese] government’s counterattack. Everyone is clear – China has been forced into battle.

“The price the United States wants is not only to take advantage of China; even more so it wants to wreck China’s economy. China has really been compelled to a desperate action. Washington has shown no sign of backing off either.”

The scene was more serene in the country’s main markets as Hong Kong’s Hang Seng Index and the Shanghai Composite bounced back from Tuesday’s mayhem to post small gains.

Even so, investors are buckling up for a bumpy ride in the weeks ahead despite Governor Yi’s reassuring rhetoric.

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