China stocks edge higher even as factory deflation deepens

SHANGHAI: Mainland China stocks edged up on Wednesday after US President Donald Trump said trade talks with Beijing were progressing well, but gains were limited by factory deflation as firms cut prices amid weak demand. Hong Kong shares inched lower.

• At the midday break, the Shanghai Composite index was up 0.3% at 3,507.69 points, while the blue-chip CSI300 index edged 0.32% higher.

• The smaller Shenzhen index was up 0.29%, the start-up board ChiNext Composite index traded 0.8% higher and Shanghai’s tech-focused STAR50 index dipped 0.35%?.

• Trump on Tuesday said he would impose a 50% tariff on imported copper and soon introduce long-threatened levies on semiconductors and pharmaceuticals, broadening his trade war that has rattled markets worldwide.

• Trump also said trade talks have been going well with the European Union and China, though he added he is only days away from sending a tariff letter to the EU.

• “We have had a really good relationship with China lately, and we’re getting along with them very well. They’ve been very fair on our trade deal, honestly,” Trump said, adding that he has been speaking regularly with Chinese President Xi Jinping.

• “It may boost market sentiment in the short term,” said Deng Lijun, analyst, Huajin Securities. “The new wave of tariff increases did not involve China, and the United States had lifted export restrictions to China for chip design software developers and ethane, and Sino-US trade tensions have eased in the short term,” Deng said, adding that risk appetite for A-shares may rebound once Beijing and Washington reach a tariff deal.

• Meanwhile, China’s producer deflation deepened to its worst level in almost two years in June as the economy grapples with uncertainty over a global trade war and subdued demand at home, piling pressure on policymakers to roll out more support measures.

• “Combined with the persistently negative GDP deflator, deflation remains a concern,” said Lynn Song, chief economist for Greater China at ING.

• In Hong Kong, the benchmark Hang Seng Index was down 0.74% at 23,970.39 points, while the Hang Seng China Enterprises Index fell 0.76% to 8,642.44 points.

• Around the region, MSCI’s Asia ex-Japan stock index was down 0.39%, while Japan’s Nikkei index was up 0.08%.