Chinese Stocks Soar to 2021 Highs as Trade Winds Shift—Is This the Real Deal or Just Another Bull Trap?
Shanghai Composite rockets past 3-year resistance—traders cheer while skeptics eye exits.
Trade optimism fuels the fire
Beijing's latest tariff truce with Brussels sends mainland equities screaming past previous ceilings. Alibaba and Tencent lead the charge—up 8% and 6% respectively—while state-owned banks ride the coattails. Never mind that Q2 GDP came in at 4.7%, missing the 5% whisper number.
Retail investors pile in
Margin debt spikes 22% week-over-week as mom-and-pop traders chase the rally. Meanwhile, hedge funds quietly increase short positions on Hang Seng futures. Classic 'dumb money vs smart money' divergence.
Cynic's corner
Remember: Chinese stocks have rallied on 'trade optimism' 17 times since 2018. Every single one got sold at 20% gains. But hey—this time it's different, right?
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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