Global Markets Mixed as China's Weak Lending Data and US Tariff Plans Weigh

Global stock markets were mixed on Monday as China's aggregate financing contracted for the first time in almost two decades, with new bank lending falling more than expected. The US plans to raise tariffs on Chinese exports, including electric vehicles, semiconductors, and medical supplies.

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Aqsa Younas Rana
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Global Markets Mixed as China's Weak Lending Data and US Tariff Plans Weigh

Global Markets Mixed as China's Weak Lending Data and US Tariff Plans Weigh

Global stock markets were mixed on Monday, May 13, 2024, as investors reacted to weak Chinese lending data and news that the United States plans to raise tariffs on a range of Chinese exports. Hong Kong's Hang Seng index rose 0.8%, while the Shanghai Composite fell 0.2%.

China's aggregate financing, the broadest measure of credit, contracted for the first time in almost two decades last month. New bank lending in China fell more than expected in April, with Chinese banks extending 730 billion yuan ($101 billion) in new yuan loans, down sharply from 3.09 trillion yuan in March. This figure was lower than analysts' expectations of 800 billion yuan.

Why this matters: The slowdown in Chinese lending has significant implications for the global markets, as China is a major driver of growth. A continued decline in lending could lead to a ripple effect on trade and economic growth worldwide.

In response to the credit contraction, the Chinese government signaled its readiness to step in with a spending boost. The Finance Ministry announced on Friday the sale of 1 trillion yuan ($191 billion) in ultra-long special bonds to raise funds for infrastructure investments. Analysts expect the People's Bank of China (PBOC) to lower borrowing costs in the coming weeks, including a potential cut to the reserve requirement ratio (RRR) and the key lending rate.

The credit contraction was accompanied by a slew of disappointing economic data releases from China, including weak consumer inflation, a drop in factory-gate prices, and a 56% plunge in foreign direct investment into the country last quarter. The PBOC faces challenges in stimulating borrowing, as households and businesses remain unwilling to take on debt despite low interest rates.

"The odds are now rising for additional monetary policy easing to come in the near term regardless of the Fed," said Becky Liu, head of Greater China macro strategy at Standard Chartered Bank. Other analysts forecast various permutations of cuts to the RRR and the central bank's main interest rate in an effort to spur borrowing and support the economy.

Meanwhile, the United States is considering increasing tariffs on Chinese clean energy products, including electric vehicles (EVs). The Biden administration plans to raise tariffs on electric vehicles, semiconductors, solar equipment, and medical supplies imported from China, with tariffs on EVs potentially quadrupling from 25% to 100%. Chinese EV maker BYD's stock dropped 0.6%, and NIO slumped 2% following the tariff news.

Other Asian markets saw mixed results, with Japan's Nikkei 225 shedding 0.4%, South Korea's Kospi falling 0.5%, and Australia's S&P ASX 200 losing 0.3%. Taiwan's Taiex gained 0.6% after leading computer maker TSMC reported a 60% surge in revenue in April. On Friday, the S&P 500 rose 0.2%, the Dow Jones Industrial Average gained 0.3%, and the Nasdaq Composite edged slightly lower.

The weak Chinese lending data and the prospect of higher US tariffs on Chinese exports weighed on global markets to start the week. As China grapples with an economic slowdown and works to stimulate borrowing and spending, the potential for increased trade tensions with the US adds another layer of uncertainty. Investors will be closely watching for any further monetary policy moves from the PBOC and the impact of US tariffs on key Chinese industries in the coming weeks.

Key Takeaways

  • Global stock markets mixed amid weak Chinese lending data and US tariff plans.
  • China's aggregate financing contracted for the first time in almost two decades.
  • New bank lending in China fell to 730 billion yuan, lower than expected.
  • Chinese government to issue 1 trillion yuan in bonds for infrastructure investments.
  • US plans to raise tariffs on Chinese clean energy products, including electric vehicles.