Two weeks on, US President Donald Trump has been doing exactly what he said he would do during his campaign. Does that mean heavy tariff on goods imported from China is about to become reality, too?
This factor alone can keep investors on their toes and think twice before putting money in mainland equities.
Since the second half of last year, various China macroeconomic figures have stopped worsening. Gross domestic product growth has stabilized and confidence in the world’s second largest economy has been recovering.
Some hope improved earnings could bring some vigor back to China’s stock market.
But at closer look, there are still dark clouds.
China’s official manufacturing purchasing managers’ index eased to 51.3 in January, down from 51.4 in December. (Although part of that can be attributed to the Lunar New Year holiday falling on January this year compared with February last year ).
Domestic consumption grew but at a slower pace.
China’s retail sales growth moderated to 10.4 percent last year from 10.7 percent in 2015.
Meanwhile, China’s export value dropped 7.7 percent last year from a year earlier, widening from a 2.8 percent decline in 2015. A weaker yuan has not boosted the nation’s exports.
Breaking down the numbers, China exported 2.54 trillion yuan (US$369.67 billion) worth of goods to the US, up 0.1 percent from the year before.
The US market accounted for 18.37 percent of China’s total export value and was its biggest market.
If Trump goes ahead with a 45 percent China import tax he promised during his campaign, that could slash Chinese exports by 10 percent and deal the mainland economy a heavy blow.
Compared with Mexico and some Muslim countries, China indeed has a much bigger bargaining power but the unpredictable US-China relationship under Trump’s administration is a risk that cannot be ignored.
As the outlook for external and domestic demand is gloomy, it would be unreasonable to expect corporate earnings to grow much this year. The upside for Chinese equities would also be capped.
This article appeared in the Hong Kong Economic Journal on Feb. 2
Translation by Julie Zhu
[Chinese version 中文版]
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