The Mainland China equity market were lower on Monday, 10 September 2018, as risk aversion selloff triggered after U. S. President Donald Trump raised the stakes in the heated trade dispute with China. However, market losses were limited as reassurances by China’s State Council that the collection of social security taxes would remain unchanged. In afternoon trade, the benchmark Shanghai Composite Index fell 0.63%, or 17 points, to 2,685.30, while the Shenzhen Composite Index, which tracks stocks on China’s second exchange, fell 1.1%, or 15.42 points, to 1,414.94. The blue-chip CSI300 index declined 0.9%, or 29.74 points, to 3,247.90.
Investors were fretted about a possible escalation in the U. S.-China trade war after US President Donald Trump on Friday signalled his intention to impose tariffs on additional $267 billion, in addition to the proposed 25% duty to be levied on $200 billion of Chinese goods. The US has already imposed additional tariffs of 25% on $50 billion of Chinese goods on 23 August under Section 301 on grounds of alleged theft of American intellectual property rights and forced transfer of technology from US companies by China. With additional tariffs on the proposed $200 billion Chinese goods, the total IPR (intellectual property rights)-related tariffs on Chinese goods will go up to $250 billion.
The US administration is currently struggling to finalize the list of Chinese goods of $200 billion that would be subjected with additional tariffs because of opposition from American businesses. Many US companies making bicycles to laptops and mobile phones, including Apple Inc., are seeking exemptions from the proposed tariffs on $200 billion Chinese goods, while cautioning that the tariffs will adversely hit America’s economic interests.
Adding to the tensions, data out Friday showed China’s trade surplus with the United States widened to a record in August 2018, an outcome that could further inflame Sino-U. S. trade tensions. Trump, who is challenging China, Mexico, Canada and the European Union on trade issues, has now expressed displeasure about his country’s large trade deficit with Japan.He said on Friday trade discussions with Japan has begun and added that India has also asked to start talks on a trade deal.
China’s State Council quelled speculation about the implementation of stricter collections, which would increase the contributions made by employers. At a meeting on Thursday chaired by Premier Li Keqiang, the cabinet said it would study a plan to lower the payment ratio of social security insurance and unveil favourable tax policies for funds investing in start-ups.
A report by Nomura Holdings said a more strict collection of social security taxes would cut corporate profits by 2.5% and chip 0.6%age points from China’s normal economic growth. It would also outweigh the benefits of raising the threshold for taxing individual incomes that was passed by the legislature at the end of last month, according to the report.
NEWS FROM THE PRESS: Forex reserves fall in AugChina’s foreign exchange reserves fell slightly more than expected in August as the U. S. dollar extended gains and the government took steps to stabilize the yuan currency in the face of mounting trade tensions with the United States. Reserves fell US$8.23 billion in August to US$3.11 trillion, compared with a rise of US$5.82 billion in July, data from the People’s Bank of China showed Friday. Trade frictions, geopolitical and economic uncertainties and valuation changes due to the rising dollar index all contributed to the decline in reserves, China’s foreign exchange regulator said in a statement. In August, the yuan fell nearly 0.2% against the dollar.
The dollar index that measures it against other major currencies rose 0.7%.
ECONOMIC NEWS: China inflation climbs to 2.3% in August — Consumer prices in China were up 2.3% on year in August, unchanged from the July, according to data released by the National Bureau of Statistics on Monday. The bureau also said that producer prices jumped an annual 4.1%, down from 4.6% in the previous month.
Trade surplus with US widens to record US$31 billion – China’s trade surplus with the United States widened to a record US$31.05 billion in August, compared with US$28.09 billion in July, according to customs data released on Saturday. The amount surpassed the previous record of US$28.93 billion set in June. For the January-August period, China’s trade surplus with the United States was US$192.64 billion, compared with about US$167.94 billion in the same period last year. Even with U. S. tariffs targeting US$50 billion of Chinese exports in effect for their first full month in August, China’s exports to the United States still rose 13.4% to US$44.4 billion, ticking up from July’s 13.3-percent growth, according to customs data. Imports of U. S. goods rose 11.1% to US$13.3 billion, decelerating from the previous month’s 11.8%.
CURRENCY NEWS: China’s yuan weakened against the U. S. dollar on Monday, inline with soft mid-point fixing by People Bank of China. Prior to market opening, the People’s Bank of China (PBOC) set the midpoint rate at 6.8389 per dollar, weakened by 177 basis points from 6.8212 on Friday. In China’s spot foreign exchange market, the yuan is allowed to rise or fall by 2% from the central parity rate each trading day. The central parity rate of the yuan against the U. S. dollar is based on a weighted average of prices offered by market makers before the opening of the interbank market each business day.
OFFSHORE MARKET NEWS, US stock market closed down on Friday, after Trump threatened tariffs on a further $267 billion worth of Chinese imports, on top of earlier promises to levy duties on $200 billion worth of Chinese goods. The Dow Jones Industrial Average fell 79.33 points or 0.3% to 25,916.54, the Nasdaq dipped 20.18 points or 0.3% to 7,902.54 and the S&P 500 slipped 6.37 points or 0.2% to 2,871.68.
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