STOCKS listed in Shanghai and Shenzhen slumped yesterday after three days of gains and the yuan weakened as the United States threatened more import duties on Chinese goods, sharply escalating the trade conflict between the world’s two biggest economies.

The commerce ministry said it was shocked by the United States’ latest move, which comes just days after both countries imposed tit-for-tat tariffs on US$34 billion in each other’s goods.

The Shanghai Composite index fell 1.76 percent, and the blue-chip CSI300 index dropped 1.73 percent.

Investors have been particularly worried that the trade row could harm an already slowing Chinese economy in a blow to global investment and growth. Analysts said domestic concerns would also weigh on shares.

“Judging from (China’s) economic fundamentals and corporate earnings expectations, which are under pressure amid the trade war with the United States, the stock market is yet to reach a bottom,” said Yan Kaiwen, an analyst with China Fortune Securities.

The government’s commitment to its ongoing deleveraging campaign means that tight credit conditions will continue, Yan said.

Airline shares, which have suffered in recent weeks amid rising oil prices and a falling yuan, were hit particularly hard. Investors fear that a falling yuan could add to fuel costs and the debt-servicing load of companies with dollar-denominated debts.

Investors were wary of China response to the latest U.S. tariff threat, as the country’s assistant commerce minister said the proposed U.S. duties harm the World Trade Organization system and globalization.

“It is impractical for China to match tariffs by quantity,” said Frances Cheung, head of Asia macro strategy at Westpac in Singapore. “If the United States goes ahead with more, China needs a combination of tools and it is prudent to guard against downside risk to growth too.”

The trade war anxiety extended to China’s yuan. Traders said they were keeping an eye on the key 6.7 per dollar level as pressure mounted on the currency. However, the market wasn’t aggressively testing that level due to concerns it could prompt intervention, they said.

The offshore yuan was at 6.6804 per dollar after hitting a low of 6.6918, down nearly 0.5 percent on the day, at one point in early Asian trade.

(SD-Agencies)