SHANGHAI (Reuters) – China’s stocks slumped Wednesday after three days of gains and the yuan weakened as the United States threatened more import duties on Chinese goods, sharply escalating the trade conflict between the world’s two biggest economies.
China’s commerce ministry said it was “shocked” by Washington’s latest move, which comes just days after both countries imposed tit-for-tat tariffs on $34 billion of each other’s goods, and ups the ante in a heated trade dispute that has rattled global financial markets.
The Shanghai Composite index .SSEC fell 1.8 percent, and the blue-chip CSI300 index .CSI300 dropped 1.7 percent.
Investors have been particularly worried that the trade row could harm an already slowing Chinese economy in a blow to global investment and growth. Analysts said domestic concerns would also weigh on shares.
“Judging from (China’s) economic fundamentals and corporate earnings expectations, which are under pressure amid the trade war with the United States, the stock market is yet to reach a bottom,” said Yan Kaiwen, an analyst with China Fortune Securities.
Beijing’s commitment to its ongoing deleveraging campaign means that tight credit conditions will continue, Yan said.
State media cast news of new tariffs and slumping shares in a different light.
The news could “bring some negative emotion to financial markets in the short term, but over the long run, fundamentals of Chinese financial markets have not changed, and (investors) shouldn’t over-value its impact,” Guan Tao, former director of the international payments department at China’s State Administration of Foreign Exchange (SAFE) was quoted as saying by the state-owned Xinhua news agency.
Airline shares, which have suffered in recent weeks amid rising oil prices and a falling yuan, were hit particularly hard on Wednesday. Investors fear that a falling yuan could add to fuel costs and the debt-servicing load of companies with dollar-denominated debts.