For the Chinese currency, investors always anchor an important "psychological" exchange rate at 7 against the U.S. dollar, and they worry that market panic may emerge if the renminbi weakens past that rate.
China's stocks fell sharply today despite Beijing's weekend announcement that it will slash the level of cash that banks must hold as reserves, a sign of underlying investor anxiety over a heated Sino-US trade war. The FTSE China A50 Index of large caps, which includes stocks most favoured by overseas investors, sank nearly 5 per cent for its biggest selloff since January 2016.
"The progressing China-US exchange war is forcing headwind to China's development, and money related facilitating is being utilized to counter that", DBS said in an exploration note.
Telecoms equipment maker ZTE led tech shares downward on Monday, falling 8.14% to 16.81 yuan after a Bloomberg News report last week said China had inserted special microchips into computer goods exported to the U.S. to steal technology secrets. On Friday, Chinese technology stocks listed in Hong Kong, including Lenovo and ZTE, slumped on a media report that the systems of multiple United States companies had been compromised by malicious computer chips inserted by Chinese spies.
Losses on major indexes in mainland China were as high as 4.8% in a major market rout, with the China A50, which includes major companies from both the Shenzhen and Shanghai indexes, as the biggest loser.
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The People's Bank of China's move will release 1.2 trillion yuan in liquidity, with 450bn yuan of that due to offset maturing loans - meaning 750bn yuan will be injected into the financial system. "Liquidity is not the issue".
The US Federal Reserve move to increase the interest rates also sparked fears of more capital outflows from China.
It comes as the USA and China have imposed tariffs on one another's goods in a row that is hitting companies and risks hurting the global economy.
The 30-year Treasury bond reached a four-year high of 3.424 percent, and was at 3.4054 percent at the US close on Friday. The spot market opened at 6.9000 per dollar and was changing hands around 6.9030 in late afternoon trading, the lowest level since mid-August. Still, tariffs could hurt the economy the longer they last.
China also has to contend with a stock market that has fallen by around 15 percent this year and a currency that has lost 10 percent of its value against the dollar. Fourteen industry analysts covering PetroChina's stock set a 12-month price target of 7.91 yuan, implying a 14 per cent decline from the Tuesday close of 9.22 yuan, Bloomberg data shows.
The fall in Chinese equities comes just a few days after the U.S. bank JPMorgan cut its outlook from overweight to neutral on the country's stock market as a result of the likely negative impact of the trade war on the country's growth.