Chinese investors spooked on tariff war despite Trump 'open' to talks

Chinese equities slumped and bond futures climbed, showing investors remain concerned about trade tensions even after US president Donald Trump signalled over the weekend that he’s open to talks. Picture: AP Photo/Ariel Schalit 

Chinese equities slumped and bond futures climbed, showing investors remain concerned about trade tensions even after US president Donald Trump signalled over the weekend that he’s open to talks.

The main focus of negotiations between Beijing and Washington centres around export controls. The US is limiting shipments of semiconductors and AI chips needed by China, while China is curbing exports of critical materials and magnets wanted by the US.

The Hang Seng China Enterprises Index fell as much as 3.6% before paring its drop to around 2%. Tech heavyweights Xiaomi and Alibaba  were among the biggest drags. The CSI 300 Index, a benchmark for mainland shares, closed down 0.5%. The People’s Bank of China boosted its daily reference rate to the strongest since November in a bid to keep the yuan steady.

The setback follows a sharp rally in Chinese equities this year, as investors shrugged off trade frictions and bought into the country’s tech prowess and Beijing’s ability to support the economy. Mr Trump’s threat late last week to slap an additional 100% tariffs on Chinese goods, in response to Beijing’s export controls on critical minerals, served as a stark reminder of the fragility of any trade truce.

The decline was milder than the 6.1% slump in the Nasdaq Golden Dragon China Index on Friday. Some investors appear to be using the selloff to buy the dip, expecting the worst to be avoided following signals from the White House that it’s open to a deal.

“Markets should brace for near-term volatility from the tariff headlines, but China’s diversified export base and swift policy response mean the broader impact on the economy and markets is contained,” said Dilin Wu, a strategist at Pepperstone Group. “Traders may see this as a short-term shock rather than a structural threat.”

A lasting deterioration of ties between the two largest economies could imperil one of the world’s best performing stock markets this year, as well as renew doubt over China’s investability.

The Hang Seng China gauge climbed nearly 30% in 2025 through Friday as Chinese equities benefited from the trade truce with the US in addition to optimism over the country’s growing heft in artificial intelligence. Tech stocks in particular were on a tear, with Alibaba’s share prices more than doubling this year.

Bucking Monday’s slide were Chinese chipmakers, as investors bet that Beijing will ramp up efforts to curb US tech imports and further nurture local firms. Shares of Semiconductor Manufacturing International Corp. rose 6.7% on the mainland. Rare-earth stocks also rallied as China used the minerals as a key trade lever.

In the currency market, the offshore yuan advanced as much as 0.2%, erasing its losses from Friday. The PBOC set the yuan fixing at 7.1007 per dollar on Monday, above estimates in a Bloomberg survey. China’s bond futures advanced amid risk-off sentiment, with the 30-year contracts jumping as much as 0.7%.

The fixing “is a strong signal that despite President Trump’s threat of 100% tariffs against China, the PBOC will not allow the yuan to depreciate and intends to maintaining exchange rate stability,” said Khoon Goh, head of Asia research at ANZ in Singapore. “This should help to calm the broader Asian FX markets today.”

Some market watchers say any downward pressure would be cushioned by investors eager to jump in after missing out this year’s rally. In a sign of resilience, Chinese companies shipped more goods overseas last month than expected. Exports rose 8.3% in September from a year earlier, exceeding the 6.6% median forecast in a Bloomberg survey of economists.

The latest tit-for-tat between US and China will cause quick downward pressure on Chinese stocks, but the short term decline is a “good opportunity to increase allocation if one doesn’t have enough of China in portfolio,” said Francis Tan, Asia chief strategist at Indosuez Wealth in Singapore. A correction would be healthy for Chinese equities given the strong gains so far this year, he said.

Also on investors’ minds will be a closed-door meeting convened by the Chinese Communist Party from October 20 to review development plans for the next five years. After the summer ended with two of the weakest months for retail sales this year, preliminary figures showed consumer demand cooling further during the eight-day Golden Week that started October 1, suggesting still-lackluster sentiment despite a bull run in equities.

Bloomberg