Today, Chinese stocks took another hit as new tariffs from both Beijing and Washington are set to take effect this week.
The Shanghai Composite Index, China’s benchmark, closed down by more than 2.5 percent – the worst beginning to the second half of a year since 2015.
Also, the losses rippled across Asia with South Korean and Japanese markets both closing weaker by more than 2 percent.
Asian stock markets have been negatively affected by escalating Sino-US trade tensions. Starting this Friday, the tariffs that were introduced by both countries on products that are worth $34bn (£25.9bn) will be imposed.
Additional tariffs are then anticipated to kick in as US President Donald Trump has threatened punitive taxes on exports from China that are worth $450bn. China promised to retaliate against these threats.
The possible economic damage of the said measures has a lot of far-reaching consequences. In Asia, the tariffs are considered to be bad news for export powerhouses such as South Korea, Malaysia, and Taiwan which sell goods to China that are utilised to make some products that are exported to the United States.
Some analysts at TD Securities informed the Financial Times: “Asia has much to lose given that the US is the region’s biggest export market and that emerging market Asian economies are the largest exporters globally.”
The stock slumps of China came alongside a further weakening of the yuan, its currency. Last month the yuan had its worst level against the US dollar on record. As an enormous amount of Chinese debt is denominated in US dollars, the debt repayments become increasingly expensive with a weakening currency and can result in a capital flight.
There are also other factors that are weighing on Chinese bourses. A decline in infrastructure spending is driving down the demand for the manufacturing sector of China.
Bloomberg reported that a crackdown on irresponsible lending in China and stricter regulations have also affected the sentiment for smaller companies as well as property and stock investors.
According to the Bank of International Settlements, the debt of China was over two and a half times the value of the entire Chinese economy by the middle part of last year. It also said that a slowdown in infrastructure investment has been a part of the measures that were taken to resolve the debt problem.