Shares in China tumbled on Thursday as the arrest of the chief financial officer (CFO) of Chinese telecom giant Huawei further undermined fragile market sentiment amid concerns over the outlook for Sino-US economic relations.
The flagship Shanghai Composite Index fell 1.68 percent, while the ChiNext Index - the country's NASDAQ-style board tracking high-growth companies - tumbled 2.61 percent. Technology stocks fared badly in the downturn, including many Huawei suppliers and partners.
The A-share market faces the double pressure of economic disputes with the US and uncertainty in US stock markets. Experts have warned of a possible stock-market sell-off caused by US tariffs, but they haven't put much importance on severe blows dealt by sudden incidents such as the arrest.
The trade dispute is likely to become a protracted one, but there may be sudden incidents that develop without warning. Those incidents can push shares significantly in one direction or another, resulting in great volatility and risk amid fragile investor sentiment.
The trade "truce" between China and the US distracted too many stock market investors from the real dangers of a tough Sino-US relationship, but the facts have proven the market was too optimistic. Negative effects on the stock market may continue. The government needs to take firmer measures to stabilize the market and restore investor confidence if there is a deep slump in Chinese mainland stocks.
China is being forced to take defensive measures, and the key issue now is to firm up investor confidence, to reassure people that the government is capable of keeping the stock market stable despite unexpected developments.
Amid the trade conflict with the US, China has showed great tolerance and avoided letting nationalist sentiment further worsen economic ties, but the public anger is really intense. Chinese netizens on Thursday flooded the Chinese social media account of the US Embassy in China with criticism over the "shameless" act of the US related to Huawei. If Washington lets the incident continue to ferment, global stock market will suffer.
US stocks fell sharply in Thursday morning trading. As global markets shuddered over the arrest of Huawei's CFO, stocks are likely to take a bigger nosedive on Wall Street. China must strengthen its firewall against contagion from US economic uncertainty, avoiding a ripple effect on the stock markets.
External influences may have an effect, but China must follow its own speed and rhythm in economic development. The country must find an internal impetus that drives economic growth by reshaping its industrial chain to reduce its dependence on US high-technology products.
If the Chinese economy and shares can follow their own course amid the US sell-off, China will gain greater initiative in handling issues with the US.