Strained Relations Between China and U.S. Stir Up Risk

  • China declines to issue 2020 GDP target
  • U.S. exchanges tighten Chinese company listings
  • U.S.- China Phase one deal safe as battle shifts to U.S. stock markets

Today China's Premier Li Keqiang rattled investors when he announced the government will not be formally issuing an economic growth target for 2020, something it's been doing yearly since 1994. Li Keqiang said the decision was due to uncertainty and in order to focus on six crucial areas including domestic demand, economic development and social stability, and the battle against poverty. While growth has been slowing the last few years, the economy shrank 6.8% year over year in the first quarter of 2020 due to the coronavirus outbreak, marking the first quarterly decline since the survey began in 1992. The refusal to have a target is seen as a pessimistic move and indicates that massive stimulus is not on the way. 

Source: YCharts.

Eight months after the Beijing-approved Hong Kong Chief Executive Carrie Lam withdrew a controversial extradition bill, China is trying to push through a new national security law for the semi-autonomous region. The law is said to ban "treason, secession, sedition and subversion" and is seen as a threat to freedoms and rights. Will China bend to protests once again or will it look to end them once and for all? Hong Kong clearly needs autonomy to remain a global financial hub, but economists are divided over how important the region still is to China's economy. The Hang Seng index fell 5.56% today.

President Trump has said the U.S. would react strongly if the law is approved. He must be pleased to hear however that China has reiterated its pledge to implement the phase one deal with the U.S. Tensions have been running high lately with the Trump administration calling for China to be held accountable for the pandemic, threatening tariffs and the president even going so far as to suggest cutting off ties with the country.

The U.S. Senate recently passed a bill and the Nasdaq exchange is planning a rule that would keep foreign companies that don't submit their audits to the Public Company Accounting Oversight Board from trading here. This is aimed at Chinese companies that could be committing fraud unnoticed.

Short interest in 556 China-based domestically traded equities and ADRs is currently at $22.7 billion, according S3 Partners, who expect it to grow, especially in those stocks with significant Chinese government ownership and China-based accounting firms that are less likely to agree to PCAOB oversight. Shorts were up $382 million in mark-to-market profits yesterday. See the 10 biggest shorts below.

China shorts
Source: S3 Partners.
Take the Next Step to Invest
The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.