Chinese markets plunge more than 5% as US-China trade tensions escalate

Chinese markets plunge more than 5% as US-China trade tensions escalate
* Mainland Chinese markets plunged on the day.
* The safe-haven Japanese yen strengthened, while the Chinese yuan dropped. The Australian dollar also declined.
* Futures pointed to steep opening declines stateside.
* U.S. President Donald Trump on Sunday threatened more tariffs on Chinese goods.
* Meanwhile, China is considering cancelling its trade talks with the U.S. this week in light of Trump’s latest threats, sources told CNBC.

Eustance Huang
PUBLISHED SUN, MAY 5 2019  7:35 PM EDT

Stocks in China plummeted on Monday following a re-escalation in U.S.-China trade tensions as President Donald Trump declared an impending increase in tariffs rates on $200 billion of Chinese goods.

The Shanghai composite fell 5.58% to close at 2,906.46, while the Shenzhen component dropped 7.56% to finish at 8,943.52. The Shenzhen composite also fell 7.381% to close at about 1,515.80.

The CSI 300, which tracks the largest listed stocks on the mainland, declined 5.84% to 3,684.62.

Over in Hong Kong, the Hang Seng index slipped 2.90% to close at 29,209.82. Hong Kong-listed shares of Chinese telecommunications equipment company ZTE plummeted 8.82%, with the company being caught in the crossfire as Beijing and Washington spar over trade. Its Shenzhen-listed counterpart also fell 9.98%.

The MSCI Asia-ex Japan index tumbled 1.76%, as of 4:12 p.m. HK/SIN.

The offshore Chinese yuan also declined to 6.7790 against the dollar, from highs of around 6.72 last week. Its onshore counterpart changed hands at 6.7655 against the greenback, from around 6.73 last week.

Trump said in a tweet Sunday afternoon that the current 10% levies on $200 billion worth of Chinese goods will rise to 25% on Friday. He also threatened to impose 25% tariffs on an additional $325 billion of Chinese goods “shortly.”

Meanwhile, China is considering canceling its trade talks with the U.S. this week in light of Trump’s latest threats, sources told CNBC.

More details in https://www.cnbc.com/2019/05/06/asia-mar...focus.html

basically Trump is forcing China to make a deal or dont even bother to continue discussions. as expected markets were overly optimistic and should now correct nicely. I'd say ~15-20% at least

It hardly caused a ripple on wall street with the Dow near all time highs. US economy is still fundamentally strong for now, they can take the hit for now. China on the other hand, seems slightly more fragile and jumpy. Ultimately they will come to a deal but no one knows when both can reach a consensus how to take this forward. A total elimination of tariffs would be unlikely in the short term.

And as long as the US economy is on steady footing, any correction would be temporary. But if the economy shows signs on weakness, correction will be significant, even a favorable trade deal would not help much.

China exports to US market happens due to US importers willing to buy and able to make a profit selling to end users.

But if Trump raises the import tax from 10% to 25%, he is effectively adding 15% tax onto the import prices and eventually paid by the buyers ( end -users ) in the US market.

So when he threatens to raise tax on imports from china , he is pushing up sale prices and hurting the local buyers in US market.

In theory it would push up the prices. But the truth is much more complex than that. Inflation is still very low considering the strength of the US economy even as the trade war ranges on for almost a year. The truth is that it is a global supply chain and it is possible to avoid tariffs by having the goods produced from low cost countries such as Vietnam. EU has slapped tariffs on many china goods and the supply chain adapted to it. More complex manufacturing of durable goods such as autos take longer, many years to adapt. Then again we are in a world where there is a clear case of over supply of goods and services, where there are no lack of alternatives.

American consumers will be hurt by higher prices. But American government gets to collect more taxes, and American businesses benefits from having fewer competition from cheaper Chinese imports. And so American stock markets aren't really concerned with tariffs on Chinese imports. But American Farmers suffer from retaliation. Yet again.

All these have happened in America almost a hundred years ago. Though it wasn't specifically China on the receiving end.

Companies had already shifted some of their production PLs overseas such as Mexico, Vietnam ... to minimize the tariff impact. 25% and further 250B is going to be significant impact. Americans can live with slightly higher cost. But I am not sure about millions of Chinese job across all sectors. You may not need much trades along Belt and Road anymore if the end products does not end up in America soils.

(08-05-2019, 07:41 AM)corydorus Wrote: Companies had already shifted some of their production PLs overseas such as Mexico, Vietnam ... to minimize the tariff impact. 25% and further 250B is going to be significant impact. Americans can live with slightly higher cost. But I am not sure about millions of Chinese job across all sectors. You may not need much trades along Belt and Road anymore if the end products does not end up in America soils.

Yes global trade is connected but even then routing to vietnam first before going to US is not the same thing as going US direct, with admin cost and fuel cost increases for eg. Just think about flying to US direct for holiday from Singapore vs 1 or 2 stopovers.

This increases inefficiencies and creates friction in the global economy. Global economy has been benefiting from technological advancement, global integration and peace dividend post cold war since Greenspan days. Something got to give when we reverses these.

Prior to the trade war, several companies are already mulling to move production away from China.
The trade war merely expedited the process. Labour cost in China isn't as cheap as it used to be.
This is particularly evident in the textile industry which is labour intensive and requires many low skilled workers. Textile companies have moved to India, Vietnam and Bangladesh years ago.

Here are a few listed companies that shifted/shifting production base to mitigate the tariff risk.
Techtronics to Vietnam
Dutech to Vietnam
Innotek to Thailand
Foxconn to India
Valuetronics to North America/SEA

(09-05-2019, 08:43 AM)holymage Wrote: Prior to the trade war, several companies are already mulling to move production away from China.
The trade war merely expedited the process. Labour cost in China isn't as cheap as it used to be.
This is particularly evident in the textile industry which is labour intensive and requires many low skilled workers. Textile companies have moved to India, Vietnam and Bangladesh years ago.

Here are a few listed companies that shifted/shifting production base to mitigate the tariff risk.
Techtronics to Vietnam
Dutech to Vietnam
Innotek to Thailand
Foxconn to India
Valuetronics to North America/SEA

Yes production in Vietnam is different from routing through Vietnam. But it's a major capex that increases vested interest / economical exposure which entails language, quality of the labour force, legal title, logistical efficiency , supply chain, taxes etc 

And companies are indeed looking to diversify out of China since the days of the bird flu etc but if your market is China or Asia then at the present moment it is not economical. So these shifts are mainly for exports to US.