China markets await massive stimulus amid Trump tariff threats

• Chinese markets rose after Trump won the US election, despite tariff threats.
• The rise in markets comes as China is reportedly considering a plan to pay down $1.4 trillion in debt.
• China is preparing for a second Trump term, but its options in the trade war are limited.

China’s stock markets rose on Thursday following Donald Trump’s victory in the US presidential election.

The rise comes despite campaign promises from Trump, the China hawk, to slap the issue. general tariff 10% for all imported goods. He threatened tariffs of more than 60% on Chinese goods.

Chinese stocks rose along with benchmarks on Thursday CSI 300 index, closed 3% higher. Hong Kong Hang Seng Index closed up 2%.

Market sentiment was upbeat amid hopes of news of an economic stimulus plan at the National People’s Congress Standing Committee meeting, which ends on Friday.

“The chances of a broader policy support package will increase somewhat after Trump wins,” wrote Lynn Song, chief economist for Greater China at ING bank, on Wednesday.

China’s top legislature is considering a plan to raise $1.4 trillion in additional debt over the next few years to finance part of the economic aid package. Reuters The news was reported last week, citing two sources familiar with the matter.

The optimism in Chinese markets on Thursday contrasted with weak performances in Japan and South Korea, where Nikkei 225 And Kospi Index The day ended little changed.

Analysts are also watching whether Beijing will devalue the Chinese yuan now that Trump has won.

“Beijing may try to devalue the yuan, as it did in 2018-2019, to counter tariff effects and improve export competitiveness,” Dilyn Wu, research strategist at brokerage Pepperstone, wrote on Wednesday.

However, this risks inflation and capital flight from China, she added. The country faces numerous economic challenges amid a real estate crisis and high youth unemployment.

On Thursday China cut the daily reference rate of the yuan to its lowest level since the end of 2023.

China is preparing for Trump 2.0, but it still lacks leverage

Despite market optimism in China, analysts say Beijing could face a difficult trade situation.

“I think the problem here is that China is still at a structural disadvantage in the trade war because it lacks symmetrical space,” said Rick Waters, managing director of Eurasia Group’s China practice, at a press briefing in Thursday about the global implications. elections in the USA.

“They don’t have the ability to impose tariffs on the US when the US does it to them,” added Waters, who was the State Department’s top China policy official during the Biden administration.

During Trump’s first term, the US and China imposed retaliatory tariffs on each other. But Beijing now has “very little” left to work with.

But over the past four years, Waters said, Beijing has developed a system of sanctions on individuals and companies that align with U.S. policies that are anathema to Chinese interests. These steps include strengthening export controls, including on critical minerals and rare earth metals.

“The first trade war was a game changer; many companies were caught off guard and investors were left in a difficult situation,” wrote ING’s Song.

“Trump’s proposed tariffs this time have been under consideration for some time and should not come as a big surprise,” he added.