China’s central bank called for investors to remain calm and pledged to use monetary policy “comprehensively”, after an escalation of the stand-off with US sent the nation’s benchmark stock index plunging.
China was responding after the US kicked off what has become a round of tit-for-tat tariffs that is threatening to develop into a trade war between the world’s two biggest economies.
Stocks in the US and China were hammered yesterday.
China’s commerce ministry said Beijing will fight back with “qualitative” and “quantitative” measures if the United States publishes an additional list of tariffs on Chinese goods.
“Such a practice of extreme pressure and blackmailing deviates from the consensus reached by both sides on multiple occasions,” the ministry said.
In New York, the Dow Jones Industrial Average saw all of its 2018 gains erased yesterday, as the sharp escalation in the trade dispute jolted the markets and triggered a rush to safer assets.
The Shanghai Composite Index earlier slid 3.8pc, falling below the 3,000 level previously breached during market crashes in 2015 and 2016.
Yesterday, People’s Bank of China Governor Yi Gang said policymakers are prepared for outside shocks and that investors should take a rational view.
“We’ll be forward-looking, prepare relevant policies, and comprehensively use all kinds of monetary policy tools,” Yi said.
Turbulence is “mostly driven by sentiment,” he said, adding that China has “room to face all sorts of trade friction.”
US President Donald Trump earlier threatened to impose further tariffs on $200bn of China’s exports, a rapid escalation of the trade conflict.
“This is an unexpected move and clearly an escalation in both trade war rhetoric, and downside risk,” said Chris Payne, managing director at GWM Investment Management. “China will soon run out of US goods on which to impose retaliatory tariffs which will move this negotiation to a more sensible and constructive forum.”
China’s state media including the ‘People’s Daily’ have also tried to reassure investors.
An article on page two of the Communist Party’s flagship newspaper said the fundamentals of the Chinese economy haven’t changed despite shifts in the domestic and external environment, and a separate story touted the government’s fiscal policies as pro-growth.
In addition, a commentary in the PBOC-run ‘Financial News’ said the central bank is expected to increase targeted monetary support and become more flexible.
Washington and Beijing appear increasingly headed toward open trade conflict after several rounds of talks failed to resolve US complaints over Chinese industrial policies, lack of market access in China and a $375bn US trade deficit.
“After the legal process is complete, these tariffs will go into effect if China refuses to change its practices, and also if it insists on going forward with the new tariffs that it has recently announced,” Donald Trump said in a statement.
US business groups said members were bracing for a backlash from the Chinese government that would affect all American firms in China, not just in sectors facing tariffs.
Jacob Parker of the US-China Business Council in Beijing, said China would undoubtedly “begin looking at other ways to enforce action against US companies that are operating in the market”. (Reuters and Bloomberg)