“China stocks hover near 2025 highs as traders assess the Trump-Xi truce, weak PMI data, and prospects of fresh policy support from Beijing.”, — write: www.fxempire.com
“The administration has not been very proud of its achievements on transshipments, which is China shipping goods through other countries. So, I don’t see them doing much about it. I think President Trump, a year from now, when the aggregate trade deficit is still very high, which is likely, when we don’t have this materialization of large-scale foreign investment in the US, which is also likely, he’s going to have some problems talking about these deals.”
Trade Data Hints at Transshipment Surge Chinese exports surged 8.3% year-over-year in September, rising sharply from August’s 4.4% increase. The surge in external demand came despite exports to the US plunging 27% year-on-year in September, signaling a potential jump in transshipments bound for the US.
Notably, imports also rebounded, up 7.4% vs. 1.3% in August, indicating a robust demand outlook.
Manufacturing PMI Flags Mounting Headwinds However, looking under the hood of China’s manufacturing sector, the October PMI revealed some concerning trends. Notably, export orders fell at the sharpest pace in six months. Weaker demand forced goods producers to lower export prices for the first time since May.
Intensifying competition, combined with falling external demand, suggests price pressures will likely persist in the near term. While manufacturers reported an increase in employment in October, the uptrend could be temporary, challenging Beijing’s efforts to boost domestic consumption. Falling margins, lower wages, and job cuts could weigh on sentiment and curb consumer spending.
Policy Risks: Country of Origin Rules in Focus Looking ahead, goods producers are also exposed to the threat of the US administration increasing its focus on transshipments and the potential introduction of a country-of-origin policy. The focus on the country of origin could impact demand for Chinese goods.
US and China Suspend Port Fees in Truce Extension On Monday, November 3, CN Wire reported news of the US and China pausing port fees, following the trade war truce, and stated:
“The US is set to suspend port fees on China-linked vessels for a year starting November 10, as part of efforts to ease maritime tensions stemming from the trade war. In response, China will halt its retaliatory measures, following last week’s trade truce between US President Donald Trump and Chinese leader Xi Jinping, which addresses issues ranging from semiconductors to rare earths and soybeans.”
CN Wire added:
“During the suspension, the US will negotiate with China over its maritime industry dominance and explore shipbuilding collaborations with South Korea and Japan to counterbalance China’s influence.”
Shifting US Strategy and Supply Chain Risks US plans to reduce China’s dominance in shipping could be part of a strategy shift. The one-year trade truce buys the Trump administration the time to target global dependence on Chinese-produced goods, rare earths, and even shipping. However, it remains to be seen whether US farmers and other sectors can shift reliance on demand from China.
Scissors commented on US reliance on China, stating:
“I think some farmers have recognized I shouldn’t be growing soybeans to sell to China. This isn’t going to last. The Chinese aren’t going to buy four years of heavy volumes of soybeans. Of course they’re not. So you know, there are American farmers, there are American companies that have made the shift or are making it. That’s good. There are other companies that are going to get burned by their China dependence.”
Other downside risks include breaches of the trade war truce and an escalation in the US-China trade war. Despite the downside risks, hopes for further policy support from Beijing, and easing trade tensions remain key near-term tailwinds. However, traders should closely monitor incoming economic indicators, which are likely to influence risk sentiment.
Mainland Equities: Momentum Holds Despite Pullback Mainland China’s equity markets pulled back from their current-year highs on Thursday, October 30, as traders responded to the Trump-Xi deal. However, sentiment improved on Monday, November 3, as further details of the trade agreement emerged.
On Tuesday, November 4, the CSI 300 and the Shanghai Composite Index gained 0.01% and 0.07%, respectively, in morning trading. Despite recent trends, the indices remain near their 2025 highs, suggesting market optimism over the Chinese economy.
The CSI 300 has rallied 18% year-to-date, trailing the Hang Seng Index’s 30% gain. Breaking above the October 30 high of 4,761 could bring 5,000 into play for the first time since 2022.