China's Stock Market Tumbles After Reaching 10-Year Peak Amidst U.S. Tensions and Sell-Offs
Chinese markets experienced a significant downturn on Friday, following a robust rally, with the blue-chip CSI300 Index plummeting 2%, marking its steepest decline in nearly five weeks. The Shanghai Composite also suffered a 0.9% loss after briefly touching its highest level since 2015, while Hong Kong’s Hang Seng Index dropped 1.7%, resulting in a five-day losing streak, the longest since March.
Why This Matters:
The recent pullback indicates renewed investor caution due to escalating tensions between China and the U.S. Beijing’s decision to tighten rare earth export controls and impose stricter checks on Nvidia’s AI chip imports has reignited fears of a tech and trade confrontation. With both Washington and Beijing adopting tougher stances ahead of a potential Trump–Xi summit, traders are capitalizing on their profits after months of substantial gains.
Market Reaction:
Tech, AI, and EV-related stocks were hit the hardest during the sell-off. The CSI Semiconductor Index plunged 5%, the AI sector fell 4.8%, and EV shares dropped 6% after regulators revised tax-exemption rules. Rare earth shares also declined by 2.9%, while battery manufacturers CATL and CALB plummeted 6.8% and 9.7%, respectively.
Analyst Insights:
Citi analysts have suggested that both China and the U.S. may be 'strengthening their leverage' ahead of upcoming trade talks. Yintai Securities noted that China’s markets are transitioning from 'a liquidity-driven rally to a profit-taking phase,' with gains likely to stall in sideways consolidation.
What's Next:
All eyes are now on Monday’s trade data, which could provide crucial insights into China’s export resilience amidst tightening U.S. tech restrictions. A stronger reading may help alleviate market concerns and revive risk appetite, while any signs of weakness could deepen the pullback and increase pressure for fresh stimulus from Beijing.
As Washington and Beijing move closer to a potential high-stakes Trump–Xi meeting, traders anticipate further policy signaling in the weeks ahead, particularly on technology, trade, and currency stability. Until then, market volatility is expected to remain high, with investors navigating cautiously between geopolitical tensions and fragile market optimism.
With information from Reuters.
I'm Sana Khan, an MPhil student of International Relations at the National Defence University, Islamabad. I specialize in foreign policy and global strategic affairs, with research experience on China’s role in world politics and the Russia–Ukraine war. My interests also extend to security studies, great power politics, and the intersection of geopolitics and foreign policy decision-making.
