On May 6, the Chinese stock market crashed.
The Shanghai Composite plunged 5.6 percent to close at 2906.46 points — the biggest single-day loss in three years. The Shenzhen Composite was down 7.6 percent to close at 8943.52 points — its worst single-day dip fall since February 2016. In both markets, more than 1,000 stock prices dropped 10 percent, pulling the daily limit down.
The collapse was sparked by two tweets from U.S. President Donald Trump, posted a little after noon in Washington — just after midnight in China. Trump said:Enjoying this article? Click here to subscribe for full access. Just $5 a month.
For 10 months, China has been paying Tariffs to the USA of 25% on 50 Billion Dollars of High Tech, and 10% on 200 Billion Dollars of other goods. These payments are partially responsible for our great economic results. The 10% will go up to 25% on Friday. 325 Billions Dollars of
…additional goods sent to us by China remain untaxed, but will be shortly, at a rate of 25%. The Tariffs paid to the USA have had little impact on product cost, mostly borne by China. The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!
Chinese financial authorities quickly anticipated the potential impact of such sensational remarks on the Chinese markets once they opened.
Just 30 seconds before the Chinese stock market opened on May 6, China’s central bank announced that it would cut reserve requirement ratios (RRRs) for 1,000 rural commercial banks in the name of “making small and micro companies easier to borrow money,” while in reality nearly 280 billion yuan (around $41 billion) would be released to the market — an obvious attempt to stimulate the economy and encourage markets.
The central bank’s gambit failed.
While international media paid close attention to the development, not a single piece of news about Trump’s sensational tweets has been broadcast by China’s television stations. Neither China’s national TV station, CCTV, nor local TV stations dared to mention Trump’s tweets — an apparent order from China’s top censors. Chinese TV stations reported about the stock market’s collapse without mentioning any possible reasons. Some bold news outlets simply said that the market crashed “because of some negative information.”
However, most Chinese investors were aware of the details of the “negative information” even if the average Chinese citizen were not. Even though China’s censor fiercely deleted the information about Trump’s China tweets online, posts — including many bits of satire and complaints — about what had happened spread widely on China’s social media platforms.