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China’s regulators tried to calm markets on Monday as stocks and the renminbi extended losses in a difficult start to the year, following weak economic data and geopolitical uncertainty ahead of Donald Trump’s inauguration.
China’s benchmark CSI 300 index fell 0.2 percent on Monday and has fallen 4.1 percent in the first three trading days of the year, marking the worst start to 2025 among major Asian indexes.
Small-cap stocks in the CSI 2000 are down 6.6 percent year-to-date. Hong Kong’s Hang Seng index fell 0.4 percent on Monday and is down 1.2 percent so far this year.
The drop came as China’s stock markets held meetings with international investors and the central bank reaffirmed its determination to keep the currency stable, with Trump threatening to dramatically increase tariffs on Chinese exports.
“At the moment everyone is asking what Trump 2.0 will bring,” said Jason Lui, head of Asia-Pacific equity and derivatives strategy at BNP Paribas. “It’s reasonable for investors to try to take a profit.”
China’s currency fell to a 15-month low of Rmb7.33 per dollar on Monday, despite the People’s Bank of China holding steady its daily trading band for the onshore renminbi. Selling pressure on China’s currency tends to be linked to bearish pressure on Chinese stocks, analysts said.
Weak manufacturing data, a two-year high for the dollar index and Trump’s impending return all contributed to the exit pressure on Chinese stocks, said Kevin Liu, CICC strategist.
The Shanghai and Shenzhen exchanges sought to reassure investors that China’s economy was underpinned by “strong fundamentals and stability” during a weekend meeting with foreign institutions “to seek thoughts and suggestions” on recent moves in Chinese stocks, they said. on sunday.
The central bank on Monday kept the daily fixed rate – the midpoint around which the renminbi is allowed to trade 2 percent in either direction against the dollar – at Rmb7.19, despite selling pressure on the currency.
Its newspaper, Financial News, said the central bank would “resolutely guard against the risk of exchange rate overshoot and maintain the basic stability” of the renminbi.
He added that the central bank’s “past experience of multiple rounds of appreciation and devaluation” showed it had “sufficient” tools to keep the exchange rate “basically stable”.
In another sign of weak sentiment, investors continued to buy long-term sovereign debt as concerns about weak domestic consumption fueled bets that the PBoC would ease monetary policy further.
The yield on China’s 10-year government bond fell 0.015 percentage point to 1.61 percent on Monday, after hitting a record low below 1.6 percent last Thursday. Bond yields move inversely to prices.
The weakest opening of the year comes despite announcements from Beijing that it wants to boost domestic consumption after a prolonged property crisis.
China’s rubber-stamp parliament will convene in March to unveil its economic policy agenda for what is expected to be a difficult year.
“In terms of the main things to look for in 2025. . . we think investors need to see more about consumption,” said Winnie Wu, chief China equity strategist at Bank of America, adding that government support for the private sector and youth employment would be key.
Despite a rough start to 2025, analysts noted that Chinese stocks had a strong 2024 after a prolonged decline, with the CSI 300 ending the year up 14.7 percent.
“We think the worst of the degradation is over,” Wu said.
