The sell-off of Chinese shares has continued as investors get increasingly worried about the long-term impact of the trade conflict between Washington and Beijing. A liquidity move by the central bank was not helpful.
The blue-chip CSI 300 index opened 2.3 percent lower and at midday was down 3.6 percent, with the Shanghai Composite shedding 3.0 percent at the end of the morning session.
Monday was the first chance for mainland investors to react to the escalating trade tensions between the US and China and a sell-off in Hong Kong last week after a long holiday to celebrate National Day.
The yuan was also down Monday as expectations of more easing measures plus surging US bond yields exerted downward pressure on the Chinese currency.
On Sunday, the People's Bank of China announced a 100-basis-point cut to lenders' reserve requirement ratio (RRR), stepping up efforts to pump more liquidity into markets and support the domestic economy.
The central bank said the move would inject a net 750 billion yuan ($109.2 billion, €94.9 billion) in cash into the banking system.
Dark clouds gathering
However, the bank's move could not prevent stocks from falling further.
"An RRR cut is not enough to counter the impact of the trade war," Shanghai Wisdom Investment General Manager David Dai told Reuters. "The economy is weak, and I see a growing number of companies selling their assets."
China's IT sector was particularly hit Monday, with shares losing about 4 percent in the morning session. On Friday, Chinese technology stocks listed in Hong Kong, including Lenovo and ZTE, slumped on a media report that the systems of multiple US companies had been compromised by malicious computer chips inserted by Chinese spies.
Commenting on the central bank's move to tweak the RRR ratio, University of Jinan finance professor Zhao Jian argued that "liquidity is not the issue right now." He said China was in a liquidity trap where there was a shortage of credit demand from the real economy, meaning that "the issue is the loss of market confidence."
hg/jd (Reuters, AFP)