Chinese stocks are down some 4% today following weak manufacturing data and lack of confidence amid a trade-war between two of the world’s biggest economies.
“New export orders in the manufacturing PMI report fell to 48, the fourth consecutive month of contraction and the lowest reading since 2016,” Bloomberg reports after adding:
“The official manufacturing purchasing managers index stood at 50.8 in September versus 51.3 in August, lower than the median estimate of 51.2 in a Bloomberg survey of economists.”
Recent allegations of Chinese backdoors in computer chips may have added to concerns with NYT reporting some tech stocks in China lost as much as 15%.
The central bank has intervened, lowering capital requirements for banks in the hope of injecting a $100 billion liquidity stimulus. Yet it does not appear to have addressed investors’ concerns.
“Liquidity is not the issue. The issue is the loss of confidence,” Zhao Jian, a finance professor of the University of Jinan, said.
He told Reuters there is a lack of demand for credit by the private sector, leading to a liquidity trap.
Zoomed out we can see here there was a bubble that popped in 2015 with the stock market now halved since its peak.
It slightly recovered until this year, when it has turned downwards, falling some 20% in 2018 trying to find a floor somewhere.
During this period China has been pumping money to keep it afloat, but this devaluation has led to a considerable fall in the price of Yuan.
It looks like stocks peaked when Yuan begun falling from 6 per dollar in 2015 to 7 in 2017. For much of last year Yuan strengthened, but as it can be seen above it has fallen for all of 2018 and is now near the all time high of 7 Yuan to the dollar.
It is unclear whether there is any direct correlation between the two, but it looks like China has miscalculated on tariffs and has underestimated Trump who was and remains a very successful businessman.
China was meant to open its markets in trade negotiations so that successful US/western exporting companies, primarily the tech sector, can access their market just as they can access western markets.
China’s response, however, was to pick on what they must have thought was a soft target, shutting down crypto importing through exchanges while keeping crypto miners who at a macro level export from China some $2 billion or more a year.
So exemplifying the disbalance in the trade relationship between China and the west, thus giving Trump cover for the implementation of tariffs on some $250 billion worth of goods.
How this unfolds now remains to be seen, with Chinese stocks testing support, but China might want to re-think its strategy starting with opening crypto exchanges as otherwise the unfair playing field is just far too obvious.