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Geopolitical Jitters: Chinese Stocks Tumble Amid US Sanction Fears

Tyler Durden's Photo
by Tyler Durden
Wednesday, Dec 15, 2021 - 09:05 AM

Chinese stocks were under pressure in the overnight session as the Biden administration proposed stricter sanctions on China's largest chipmaker, according to Bloomberg

The Hang Seng Tech index closed down 1% to 23,420 amid worries of further regulatory crackdowns on Chinese tech companies by the US. 

The reason for the downdraft in Chinese stocks is the National Security Council will hold a meeting Thursday to tighten the rules on exports to China's largest chipmaker, Shanghai-based Semiconductor Manufacturing International Corp (SMIC). 

One proposal being considered at the meeting would prevent the export of machinery to produce advanced electronic components. This could limit US-based KLA Corp. and Lam Research Corp.'s exports of semiconductor equipment to SMIC. 

SMIC plunged as much as 4.3% in Hong Kong on the news. 

Citigroup's analysts Atif Malik and Amanda Scarnati responded to the overnight surprise. Both wrote in a note that "we continue to see low likelihood of new restrictions at least until the semiconductor supply chain shortages normalize." 

So maybe it's just more bark from the Biden administration for optics. We're sure implementing such a restriction amid snarled supply chains in a midterm year would spark a tit-for-tat battle with Beijing that could prove to be disruptive. 

Waking up this morning in the US, traders will find shares in U.S.-listed Chinese firms down. Shares in commerce giant Alibaba dropped as much as 2.3%, online marketplace operator JD.com -1.8%, e-commerce platform operator Pinduoduo -2.1%, Baidu -1.9%, Bilibili -2.4%, ride-hailing firm Didi -1.6%. The Nasdaq Golden Dragon China Index has dropped more than 40% on the year. 

On Thursday, the Financial Times also reported that the Biden administration would place eight Chinese companies on its "Chinese military-industrial complex companies" blacklist. One of the companies expected to be on the list is DJI, the world's largest commercial drone manufacturer. The new measure marks the latest effort by the administration to punish China for its human rights violations of Uyghurs and other Muslim ethnic minorities in the north-western Xinjiang region. 

Just law week, Treasury's Office of Foreign Assets Control sanctioned SenseTime, a top developer of facial recognition technology, for their connection to "human rights abuse, including technology-enabled abuse" of Uyghur Muslims.

Besides deteriorating Sino-US relations, China's avalanche of macro data turned out to be a disastrous miss across the board on Tuesday night which also pressured Asian stocks lower. 

Instead of actual "words," the Biden administration is becoming brave enough to act against China from national security and human rights standpoint but remember midterms are nearing -- so the question remains: How far will the administration go to implement such measures without disrupting relations and markets? 

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