Chinese Stocks Decline Amid Diminished Stimulus Expectations Following Tariff Truce

Chinese equities fell on Tuesday, as initial optimism over a temporary easing of trade tensions with the United States gave way to concerns that the truce may reduce Beijing’s motivation to introduce further economic stimulus measures, Bloomberg reports.

The Hang Seng China Enterprises Index in Hong Kong dropped as much as 1.9%, reversing much of Monday’s 3% gain that had been driven by hopes for improved Sino-US relations. Mainland China’s CSI 300 Index also surrendered earlier advances, reflecting a broader pullback in investor sentiment.

The market reaction reflects growing caution that Chinese policymakers may now be less inclined to accelerate fiscal spending or introduce new stimulus programs, which many investors had hoped would offset the country’s ongoing economic slowdown.

“The reality is that there is less incentive for China to initiate any stimulus or higher fiscal spend, and therefore hopes that stimulus to address the key underlying issues in China are being dashed,” said Sat Duhra, a portfolio manager at Janus Henderson Investors.

The shift in sentiment follows Monday’s announcement that the United States will reduce tariffs on Chinese imports from 145% to 30% for a 90-day period, while Beijing will lower its tariffs to 10% on most US goods. President Donald Trump also said China had agreed to eliminate certain non-tariff barriers, suggesting the potential for deeper concessions if talks continue to progress.

However, investors are now turning their attention to the lingering risks from elevated tariffs and the lack of clarity about the next phase of negotiations. Some fear that the temporary nature of the agreement may not offer enough relief to boost consumer confidence or corporate earnings in the months ahead.

“The uncertainty is no longer about what tariffs will be imposed, but about how these levels will hit earnings and economic momentum, especially heading into the third quarter,” said Charu Chanana, chief investment strategist at Saxo Markets. “So while sentiment has improved, the real test lies in how consumers and corporates respond to these new trade realities.”

Despite Monday’s rally, the Hang Seng China Enterprises Index remains below its levels from early April, when the trade dispute intensified following the announcement of steep US tariffs. The pullback has also dampened hopes for a sustained rebound in Chinese equities, which had been among the best performers globally earlier this year.