Chinese stocks have big role to play in trade war

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

HONG KONG – US President Donald Trump’s erratic policymaking may be out of Beijing’s hands, but there is one vital thing it can control: its stock market. Chinese indexes have been less volatile this past week compared to global benchmarks. Official intervention is one reason. The resilience of equities matters now more than usual to China as it seeks to shore up domestic confidence both to withstand US tariffs and to spur consumption.

Since Trump unveiled sweeping reciprocal tariffs on his “Liberation Day” on April 2, the S&P500 has fluctuated wildly – diving 12% in four days and then rallying 10% on Wednesday following Trump’s abrupt U-turn on most countries, except China which was hit with a 125% levy. By contrast, Shenzhen and Shanghai remain calm: the benchmark CSI300 has retreated by a relatively mild 4% this month.

Chinese equities were already deeply discounted but it helps a lot that the “national team”, or designated state-backed entities, are buying up stocks to prop up prices; others have pledged share buybacks. Regulators have also eased rules to allow insurers to up their equity allocations.

Most notably, Central Huijin, part of the country’s sovereign wealth fund, has stepped in as a de facto market stabilization fund. On Monday, it said it had increased holdings of exchange-traded funds and will continue to do so, without elaborating. That sends a powerful signal to local investors that more support is on the way: the state giant oversees more than USD 27 trillion of assets after a February revamp which elevated its role in helping Beijing support asset prices.

Moreover, investors are betting on aggressive fiscal policies to help the government get close to its GDP growth target of “around 5%” this year. That’s because boosting consumption can offset collapsing exports for the USD 18 trillion trade-dependent economy. And reflating property and stock prices is key to that goal.

Optics matter too. Chaos in the US bond market essentially forced Trump to blink on his trade war. Meanwhile, China vowed earlier this year to stabilize asset prices. Fulfilling that promise will shore up the faith ordinary Chinese have in Beijing’s broader policy response. That gives China’s national team a vital role in the ongoing standoff between the world’s two largest economies.

Context news

China’s top leaders are planning a high-level meeting soon to hammer out measures to boost the economy and stabilise capital markets as trade war with the United States escalates, Reuters reported on April 9, citing people with knowledge of the matter.

Central Huijin, the domestic unit of sovereign wealth fund China Investment Corp, said on April 2 it had increased its holdings of exchange-traded funds and would continue to do so in the future to “resolutely safeguard” the stable operation of the capital market.

(By Ka Sing Chan; Editing by Robyn Mak and Ujjaini Dutta)