Chinese stocks rally to highest level since 2021 on trade optimism

A major gauge of Chinese companies listed in Hong Kong is set to close at its best level since 2021, driven by softer tensions between Beijing and Washington and strong gains in leading technology stocks. 

The Hang Seng China Enterprises Index climbed up to 1.2% on Wednesday, surpassing its previous YTD peak reached on March 18. Shares of Meituan and Tencent Holdings Ltd. led the rally among the gauge’s largest components. Across the board, the Hang Seng Index rose by 1%.

This surge in Chinese stocks builds on a swift recovery from the upheaval in April, when U.S. tariff threats from President Donald Trump rattled markets. Treasury’s Scott Bessent will be meeting Chinese counterparts next week in Stockholm for a third round of talks to extend the current tariff pause and broaden discussions.

Traders are also eyeing China’s Politburo due later in July, hoping to see signals on economic policy for the second part of 2025. Recent steps by Beijing to rein in steep price cuts and curb surplus capacity in some industries have been met with approval, as many view them as critical to battling deflationary pressures.

Year‑to‑date, the Hang  Seng China gauge has climbed 26%, outpacing a 7% gain in the S&P 500 and a 15% rise in the MSCI Asia Pacific Index. The HSCEI trades at roughly ten times estimated forward earnings, compared with almost 15 times for its Asian counterpart. On mainland China, the CSI 300 Index has added about 5% over the same period.

EU report blames China for currency manipulation

European firms, meanwhile, are feeling strain from what a German Economic Institute study describes as currency manipulation by Beijing to keep the yuan weak. The report, written by Juergen Matthes of the Institute for the World Economy in Cologne, comes ahead of an EU summit in China where leaders plan to tackle ongoing trade disputes.

Matthes points out that the euro-yuan rate has stayed largely unchanged in recent years, even though production costs in Europe have surged compared with China’s. “That suggests likely intervention by the central bank,” he said. In past exchanges over such claims, China has insisted it follows a managed float system guided by market demand and supply.

The study notes that European exporters face a double hit: a flood of Chinese goods redirected from the U.S. market and a stronger euro against the USD thanks to America’s trade policy. Since 2020, producer prices have jumped in Germany and across the euro area because of supply‑chain strains and a crisis in the energy markets, while Chinese prices have barely moved.

Despite these shifts, the yuan has held steady, resulting in a real euro appreciation of more than 40% against the renminbi between the start of 2020 and spring 2025. That mismatch has deepened the euro zone’s trade deficit with China, the report finds.

Trump also labeled China a currency manipulator in the past

Under normal market forces, higher imports from Europe would lift the yuan by pushing up demand, but that did not happen, Matthes said.

During his first term, President Trump said that China manipulates its currency. The U.S. Treasury removed that tag in January 2020 when Chinese officials came to Washington for a trade pact. Last month, Washington issued a warning saying China stood out “in its lack of transparency around its exchange rate policies and practices.”

Beijing, in response, said it would not resort to “competitive currency devaluation.” Yet Matthes argues the central bank’s approach remains “highly non‑transparent.” Although Beijing allows the yuan to move in a narrow range and refers to a currency basket, “how this is done, exactly, no one outside China knows,” he said, adding that the euro has become “collateral damage.”

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