The Chinese government’s determination to support the economy and stock market was evident on April 8, the day after US President Donald Trump threatened to impose a further 50% in tariffs on China (to take the total to 104%) following the Chinese government’s announcement to tariff US imports into the country by 34%.
On April 8, Chinese foreign ministry spokesperson Lin Jian said China is ready to fight till the end if the US is bent on waging a tariff war or trade war following Trump’s threat of imposing an additional 50% on Chinese imports.
“The indiscriminate imposition of tariffs by the US seriously violates the legitimate rights and interests of other countries, seriously violates the rules of the World Trade Organization, seriously damages the rule-based multilateral trading system and seriously impacts the stability of the global economic order. It is typical unilateralism, protectionism, and economic bullying and has been widely opposed by the international community,” Lin said.
No winners are likely to emerge from trade and tariff wars; protectionism leads nowhere, Lin said.
See also: Chinese stocks resume slide as Trump raises trade war stakes
“The Chinese people are not afraid of trouble. Pressuring, threatening and blackmailing are not the right ways to deal with China,” he adds, ”China will take necessary measures to resolutely safeguard its lawful rights and interests. If the United States ignores the interests of the two countries and the international community and insists on fighting tariff wars and trade wars, China will surely fight till the end.”
While this would escalate the trade war, Chinese stocks could stabilise and perhaps even rally.
In a show of financial muscle, Chinese stocks received support on April 8 when the Hang Seng Index, the Hang Seng Tech Index, and the Hang Seng Chinese Enterprise Index rose by 1.51%, 3.79% and 2.31%, respectively, after tumbling on April 7.
See also: Chinese state funds plan to buy stocks as market rout deepens
In January, the People’s Bank of China (PBOC) implemented structural monetary policy tools to channel more liquidity into the stock market. The China Securities Regulatory Commission (CSRC) encouraged insurance funds, pension funds and other institutional investors to increase their equity investments.
On April 7, Xi is reported to have said revitalising consumption, expanding domestic demand and enhancing investment efficiency are on the country’s top agenda. Xinhua reported that Xi believes boosting consumption will help spur domestic demand and economic growth.
Already, in March, the Chinese government had issued a special action plan to boost consumption by increasing social spending. These included detailed policies on childbirth, salary-related policies, unemployment subsidies by the central government totalling RMB66.7 billion ($12.3 billion) this year, the allocation of funding by the central government to boost domestic travel and related consumption in China and various measures to boost services consumption.
Tit-for-tat
While many countries, including those from Asean, are sending delegations to the US to “kiss the ring” of Trump and negotiate on tariffs, on April 4, China announced a series of retaliatory trade measures.
These are 34% tariffs on all US imports effective April 10, matching the US hike on Chinese goods. This is in addition to the previous two rounds of relatively modest retaliatory tariffs announced in February and March.
China also announced export controls of rare earths and other important products to the US. Export restrictions were placed on seven rare earth materials critical for defence and clean energy (samarium, gadolinium, terbium, dysprosium, lutetium, scandium and yttrium). This followed February’s export controls on five metals (tungsten, tellurium, bismuth, molybdenum, indium) used in semiconductors and defence.
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Investigations and bans on other crucial products were announced. This includes a probe into medical CT X-ray tubes from the US and India, a ban on poultry imports from two American companies, and China’s State Administration for Market Regulation (SAMR) launching an investigation into DuPont for suspected violation of China’s anti-monopoly laws. As of April 9, these tariffs and export controls remain in force.
Difficulty of rerouting
Despite the Chinese government’s show of muscle, the Chinese economy is still heavily dependent on exports. According to Nomura, exports account for around 14% of its GDP in terms of value added.
Says Nomura in an April 8 update: “Rerouting will be much more difficult, as the US government uses “reciprocal tariffs” to plug the loopholes. The ending of the de minimis exception is set to hit many Chinese exporters, which contribute around 11% of China’s exports to the US.”
“The drop in export growth would dent GDP growth, but we expect larger fiscal stimulus to fill the gap. We thus maintain our GDP growth forecast of 4.5% for this year, which is below Beijing’s target of around 5.0%,” Nomura adds.
Since China will manufacture for the local economy, and in the wake of falling global commodity prices, Nomura reckons disinflationary forces will prevail in China.
“To deliver stable growth, Beijing will look to a variety of measures to boost domestic demand, especially by accelerating the fiscal spending. In the near term, the PBOC might guide funding costs lower by increasing its bond purchases (and increasing liquidity supply) via outright reverse repo or direct purchases of Chinese government bonds (CGBs) before cutting the required reserve ratio (RRR) and policy rates. Beijing might also step up supportive measures to clean up the mess in the property sector,” Nomura adds.
Stimulus to stabilise stock market
The upshot of a meaningful stimulus, monetary easing, and a floor under the troubled property sector could have a stabilising impact on the Chinese stock market.
“We expect China’s stabilisation funds (referred to as national teams), supported by the PBOC, to intervene significantly in stock markets over coming weeks. Beijing will also very likely vow to speed up and increase fiscal spending to bolster demand, especially consumption demand. The PBOC, in addition to funding the national teams, could also implement high-profile RRR cuts and policy rate cuts sooner than what had been planned,” Nomura suggests.
The two most liquid China-focused ETFs on the Singapore market are the Lion-OCBC Securities HSTECH ETF (HSTECH) and the Lion-OCBC Securities China Leaders ETF (China Leaders). A third interesting ETF is the Nikko AM-STC China Electric Vehicles and Future Mobility (EVS) ETF.
BYD, a key component of EVS, released its 1QFY2025 preliminary results on April 8. According to the announcement, the company expects to deliver 1QFY2025 earnings of RMB8.5 billion to RMB10 billion, 86% to 119% y-o-y higher. “We believe this implies solid improvement in profitability in 1Q2025 compared to 1Q2024 owing to an enlarging business scale, less aggressive prices compared to a year ago and improving contribution from the overseas market,” Nomura says.
BYD completed a placement of new shares on March 11, raising HK$43.38 billion ($7.55 billion) and Nio (also an EVS component) completed a placement of new shares on April 8, raising HK$4.03 billion.
CGS International suggests investors stay with domestic-focused sectors. Companies insulated from US demand are Tencent Holdings, Trip.com, new energy vehicles, and high-dividend plays like China Merchants Bank and Link REIT, which have yields of around 5%–6%.
Geopolitical plays include gold-related stocks Zhaojin Mining and Zijin Mining), which offer safe havens amid trade tensions, according to CGS. On the other hand, Lenovo Group, BYD Electronic and SMIC are exposed to the US.
