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China stocks turn down as investors brace for countermeasures against US tariffs

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[SHANGHAI] China stocks gave up early gains and ended slightly lower on Wednesday as investors trimmed their equity exposure ahead of the Tomb-sweeping holiday break and as they braced for Beijing's countermeasures against US tariffs on Chinese exports.

While there was some lingering unease among investors, most see the widely-expected US sanctions as having negligible impact on growth, and expect a full-blown trade war will be averted through negotiations.

Both the bluechip CSI300 index and the Shanghai Composite Index dipped 0.2 per cent, to 3,854.86 points and 3,131.11 points, respectively.

Most sectors fell but the consumer sector, which is widely seen as immune to trade disputes, rose over 3 per cent. Gold stocks also strengthened, reflecting simmering anxiety over Sino-U.S. trade relations.

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Late on Tuesday, the Trump administration announced 25 per cent tariffs on US$50 billion of annual imports from China, covering around 1,300 industrial technology, transport and medical products.

China's commerce ministry immediately warned it was preparing countermeasures of equal intensity, with a press conference slated late Wednesday afternoon to discuss Sino-US relations.

But there were no signs of the kind of panic seen about two weeks ago when US President Donald Trump vowed to impose tariffs on up to US$60 billion of imports from China, raising fears of a trade war and triggering a sell-off in risky assets.

"The market reaction has been calm because investors are psychologically prepared for the move," said Tai Hui, chief market strategist for Asia-Pacific, JP Morgan Asset Management.

"The largest concern remains whether this trade tension could further escalate, but history suggests negotiation is likely to follow, which would provide some much needed short term relief to investors and allow them to focus back on economic and corporate fundamentals, which are still in decent shape."

Mr Tai's view was echoed by Kai Kong Chay, Greater China portfolio manager at Manulife Asset Management, who estimates the US sanctions would lower China's GDP by only 0.1 per cent.

"The Chinese economy's structure is changing," he wrote, adding that the contribution from household consumption to GDP (gross domestic product) growth has steadily increased to over 4 per centage points over the past five years, while that from net exports stabilised at 0.1 per centage point.

The asset manager favoured sectors such as consumer, education and environmental protection that benefit from rising domestic consumption and are shielded from trade frictions.

China stocks will halt trading on Thursday and Friday for the Tomb-sweeping holiday, which commemorates and pays respect to a person's ancestors.

REUTERS