China braces for a “fight to the end” against US tariffs

Trade war escalates with no end in sight: We seem to be heading to a long war of attrition between the world’s biggest two economies, after China’s commerce ministry vowed to “fight to the end” against what it labeled as “unilateral bullying” by the US. Beijing is already deploying a number of monetary and fiscal measures to absorb tariff shocks, with little signs that the crisis will be resolved any time soon.

IN CONTEXT- The Trump administration announced yesterday it will move forward with an additional 50% tariff on Chinese goods, bringing average tariffs on Beijing’s exports to over 120%. The combined tax includes the existing 20% tariffs over fentanyl trafficking accusations and the more recent 34% unilateral tariffs, as well as pre-existing 20% tariffs from before Trump’s second term.

The Chinese government allowed the CNY to depreciate on Monday in a bid to improve export competitiveness, fixing the rate against the USD at an 18-month low of just below CNY 7.20. Beijing will likely move forward with gradual depreciation rather than sudden currency moves to avoid destabilizing its economy, Barclays Asia Cross-Asset Strategy Head Kaanhari Singh told the Financial Times.

Other fiscal measures could include increased subsidies and export tax rebates to support affected industries. While such measures carry the risk of exacerbating industrial overcapacity and fueling deflationary pressures, the risk may be worth it for Beijing who “does not view the US measures as conducive to creating the right atmosphere for negotiations,” Bo Zhengyuan, Partner at Plenum, told Reuters.

State-owned companies are also pledging to increase share purchases and engage in stock buybacks, in a bid to stabilize the stock market which saw a 7% drop on Monday’s session, before paring back some of the losses yesterday.

Tariffs could push China to seek alternative markets, potentially deepening trade ties with the EU and other developing nations in a bid to mitigate some of the impact. Beijing was Washington’s second largest source of imports last year, logging USD 439 bn in Chinese imports, while US exports to China reached USD 144 bn.

BUT- Not everyone inflicted with tariffs is in a confrontational mood, and traditional alliances might end up prevailing. The EU is exploring ways to resolve the conflict with confidence that “sooner or later, we will sit at the negotiation table with the US and find a mutually acceptable compromise,” EU Trade Commissioner Marcos Sefcovic said yesterday.

MARKETS THIS MORNING-

It’s a mixed morning for Asian markets, with Japan’s Nikkei down 2.7%, while Shanghai Composite remains unchanged. Meanwhile, Wall Street futures indicate more losses on market open, after the S&P 500 dropped 12% over the last four days.

THE CLOSING BELL-

The ADX rose 0.5% yesterday on turnover of AED 1.5 bn. The index is down 4.6% YTD.

In the green: Abu Dhabi Ship Building Co. (+7.7%), Adnoc Drilling (+7.5%) and Alpha Dhabi Holding (+5.9%).

In the red: AL Khaleej Investment (-9.9%), Emirates Ins. Co. (-8.8%) and Abu Dhabi National Takaful Co. (-7.7%).

Over on the DFM, the index rose 1.9% on turnover of AED 765.7 mn. Meanwhile, Nasdaq Dubai was up 1%.

CORPORATE ACTIONS-

#1- Publicly listed property developer RAK Properties appointed Arqaam Securities as its liquidity provider for shares traded on the Abu Dhabi Securities Exchange (ADX), according to a press release (pdf). Arqaam Securities will maintain two-way price quotes within a structured mandate and publish research on the company.

The details: The agreement aims to reduce bid-ask spreads, improve price discovery for shares, and increase market participation from institutional and retail investors. Arqaam’s ownership in the company will not exceed 5% of listed shares and foreign ownership in RAK Properties remains capped at 49%.

#2- Borouge approves USD 1.3 bn dividend payout and share buyback ahead of merger launch: Borouge shareholders has greenlit a final dividend payout of USD 650 mn for 2024, bringing total dividends for the year to USD 1.3 bn, according to a press release (pdf).

The vote came alongside approval of a 2.5% share buyback program, which it initially proposed last month, as the company prepares for the USD 60 bn merger with Borealis and Nova Chemicals. The buyback will be conducted through open-market transactions, with execution subject to market conditions and regulatory approval.

The new polyolefins producer will trigger higher payouts post-merger, with annual dividends of USD 2.2 bn, or 16.2 fils per share, expected, according to the disclosure. It also said the company is aiming for a 90% net income payout ratio until 2030 as well as inclusion in MSCI indices.

#3- ADNH Catering has approved the board’s recommendation to distribute AED 60 mn in dividends for FY 2024 — equivalent to 26.6% of the company’s share capital, or 2.7 fils per share — during its annual general assembly meeting, according to an ADX disclosure (pdf).

#4- Orient Ins. approved the distribution of AED 400 mn in dividends for 2024, equivalent to 80% of its share capital, according to a DFM disclosure (pdf). The proposal was initially put forward by the board of directors during their meeting last month.