06/20/2018, 09.54
CHINA - USA
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Shanghai stock market plummets. But it's not all the fault of the tariff war

by Paul Wang

In four days, Shanghai fell 6%, a two year minimum. Hong Kong and Seoul also mark losses. Trump's threats weigh on $ 200 billion worth of Chinese export products. But the problem remains Chinese state debt. The assurances of Yi Gang and the injection of new liquidity.

 

Hong Kong (AsiaNews) - Today in the middle of the day, the Shanghai stock market hit -0.6%. This must be added to yesterdays low of -3.8%. In the last four days it has lost 6%. The media claim this is the results of the "tariff war" that is intensifying between the United States and China. But analysts also note the weakness of the Chinese economy, which is in need of reform.

Yesterday, globally all of the major stock exchanges were negative: Hong Kong lost 2.78%; Seoul over 5%. This came after the US President Donald Trump's threat to impose new USD 200 billion tariffs on Chinese products, followed by Beijing's claims that China has no choice but to take comprehensive measures against the US. The telecommunications sector has dragged the heavy losses. The ZTE shares fell 10% for the fifth consecutive day, after the US Senate voted to re-impose the ban on the sale of US electronic products to the Chinese company.

Yi Gang, governor of the People's Bank of China, yesterday advised investors to remain "calm and rational", assuring that the country's economy has a growing resistance and ability to manage external shocks. Yi Gang pointed out that on the growth of China the incidence of trade fell from 64% in 2006 to 33% in 2017, and that the surpluses of current accounts (current account surplus) fell from 10% in 2007 to 1.3% in 2017.

But according to analysts, the stock sell-offs in recent days reflect larger concerns about China's close lending on loans and liquidity, to reduce the State's debts.

During all these years of world economic crisis, the Chinese economy has been able to take advantage of State injections of liquidity and easy loans from banks, especially for state industries. Many economists are convinced that Chinese is a "drugged" economy, held up by state loans and by state debt coverage. In 2017 the state debt reached 260% of the Gross Domestic Product.

In a surprise move last night, the People's Bank of China made a loan of 200 billion yuan to financial institutions injecting - together with others - at least 250 billion yuan (about 34 billion euros).

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