China’s stock market experienced a rocky start to 2025, with the CSI 300 index suffering its worst first-day trading loss since 2016, plummeting 2.9%. This decline, coupled with a 2.2% fall in Hong Kong’s Hang Seng index, reflects growing investor anxiety over potential US tariffs. The downturn comes as former President Trump threatens to impose a 10% tariff on Chinese goods upon re-entering the White House.
Table Content:
Renewed Trade Tensions Rattle Chinese Equities
This renewed threat of a trade war casts a shadow over the Chinese economy, which has been struggling despite government stimulus measures implemented by President Xi Jinping throughout 2024. The prospect of increased tariffs has amplified concerns among investors, leading to a pessimistic outlook for the Chinese market. Xin-Yao Ng, an investment director at Abrdn, highlighted the prevailing sentiment, stating that downside risks for China significantly outweigh potential upside in the first quarter of 2025.
Weak Manufacturing Data Fuels Market Concerns
Further exacerbating market woes, December’s Caixin China Manufacturing Purchasing Managers’ Index (PMI) registered a lower-than-expected reading of 50.5, falling short of the anticipated 51.7. This weaker-than-projected figure points to a continued slowdown in the manufacturing sector, attributed largely to declining export demand amid global economic uncertainties and trade tensions. Dr. Wang Zhe, senior economist at Caixin, emphasized the negative impact of export weakness on overall demand.
Zhaopeng Xing, a strategist at ANZ Bank China, noted that the disappointing PMI data, combined with recent US dollar strength, has contributed to deteriorating onshore sentiment. Investors are increasingly apprehensive about the potential impact of US tariffs and are seeking to reduce their exposure to the Chinese market.
Xi Jinping’s Growth Projections Face Headwinds
Despite the market turmoil, President Xi Jinping, in his annual address, maintained that the Chinese economy is on track for approximately 5% growth in 2025. He characterized the overall economic situation as “stable and progressing.” While Beijing’s stimulus policies may offer a short-term boost, analysts caution that this growth may be unsustainable in the face of escalating trade tensions.
Gabriel Ng of Capital Economics suggested that the impact of stimulus measures might be limited to a few quarters, particularly if Trump follows through on his tariff threats. Homin Lee of Lombard Odier expressed concern over the prevailing cautious sentiment among investors despite Beijing’s recent stimulus signals. He emphasized the fragility of China’s economic momentum and the need for sustained efforts to address deflationary risks.
Conclusion: Navigating Uncertainty in the Chinese Market
The combination of renewed trade war fears and weak economic data has created a challenging environment for Chinese equities. While President Xi Jinping projects confidence in China’s economic prospects, the looming threat of US tariffs and underlying economic fragilities raise concerns about the sustainability of growth. Investors are likely to remain cautious in the near term as they navigate this uncertain landscape. The coming months will be crucial in determining the impact of potential trade policies and the effectiveness of Beijing’s efforts to stabilize and stimulate the economy.
