China Panics As Stock Market Plunges | US-China Tensions | Hong Kong

Happy Saturday everybody. Welcome to another episode of China Update where we discuss leading political, economic and geostrategic analysis on the world's number two economy. My name is Tony. Regular viewers of China Update may notice that I am finally back home after almost six weeks of channel related traveling. It is good to be back in one place and have some normality with scheduling and everything. Thank you everyone for your patience while I was traveling. It was difficult at times to film in different hotels but China never stopped and so the channel couldn't stop either it's good to be back now there's a lot to cover let's jump in and first up chinese stocks staged a sharp reversal on friday as heavy trading and exchange traded funds associated with state-backed investors fueled expectations of government intervention to stabilize the market the csi 300 index closed 1.7 percent higher after falling as much as 1.9 percent partially recovering losses after entering a bear market officially on thursday the rebound offered relief to investors following a prolonged retreat from June's peak. Turnover across nine ETFs favored by China's so-called national team of state-backed investors reached 84 billion yuan, the highest since the 20th of July, according to Bloomberg compiled data. The eFund ChinaX ETF attracted inflows of 19.7 billion yuan, a two-year high. Those funds collectively received net inflows of 46 billion yuan on Thursday. Authorities have introduced selling restrictions and encouraged share buybacks, but investors remain concerned that intervention alone cannot sustain a recovery. China's stock market troubles stretched back several years. The CSI 300 suffered three consecutive annual declines from 2021 to 2023, as pandemic disruption, the property downturn and weak consumer confidence undermined earnings expectations. It rebounded 14.7% in 2024 following policy support, but that recovery highlighted investors' dependence on government stimulus to restore confidence. The latest downturn reflects persistent concerns about sluggish consumption, weak investments and corporate profitability. Battery giant CATL's slower-than-expected quarterly profit growth added to those worries this week, despite stronger-than-forecast third-quarter economic growth. Aberdeen fund manager Shin Yao warned that state buying offered only temporary relief, arguing that stronger domestic consumption and investment were essential. Meanwhile, outstanding margin trades fell 1% on Thursday to their lowest level in a year, signaling caution among investors using borrowed money. Further declines could trigger margin calls and additional selling. Hong Kong technology shares also rebounded, gaining as much as 2.7%. Nevertheless, a durable recovery will depend on improving economic fundamentals and earnings alongside continued official support. Next up, mainland Chinese authorities have condemned Britain's latest assessment of Hong Kong, rejecting warnings that national security legislation is undermining the freedoms and openness behind the success of the financial centre. The dispute followed the release on Thursday of the UK government's six-monthly report on Hong Kong. In its foreword, the Foreign Secretary Ed Miliband expressed concern about the widening application of national security laws and the continued imprisonment of former media tycoon Jimmy Lai. Lai, who received a 20-year sentence for national security offences, remains a prominent source of friction between London and Beijing. Miliband reiterated Britain's demand for his immediate release, pledging to raise the case in discussions with Chinese and Hong Kong officials. He also highlighted proceedings involving former leaders of the disbanded organisation behind Hong Kong's annual Tiananmen Square vigil, alongside activist Joshua Wong. Together, he argued these cases reinforced concerns about the breadth of security prosecutions. Miliband said the national security law imposed by Beijing in 2020 had restricted freedoms, discouraged debate and weakened the openness that supported Hong Kong's international standing. Hong Kong's government issued a sharply worded response early Friday yesterday, accusing Britain of spreading falsehoods and using political manoeuvres to interfere in the city's governance. Officials maintained that the legislation targets only a small minority involved in activities threatening national security, while accusing London of applying double standards. China's embassy in London similarly rejected the report as interference in domestic affairs. It said security, legal protections, government effectiveness and the business environment had improved and urged Britain to stop publishing its assessments. Next up, we have one more development to cover, but just quickly, if you're getting some value from today's episode of China Update, as always, it's a big help if you just hit the like button. Consider subscribing if you haven't already, and if you'd like to go the extra mile and help me keep China Update financially sustainable, Patreon and BuyMeACoffee links are in the description below. And finally for today, U.S. companies and investors would face tighter restrictions on investments in sensitive Chinese technologies under proposed Trump administration rules, extending Washington's national security scrutiny into biotechnology alongside advanced chips and artificial intelligence. The Treasury Department unveiled the proposals on Thursday to implement the Comprehensive Outbound Investment National Security Act, passed by Congress in 2025. The legislation targets investment involving China and other U.S. adversaries, including Russia and Iran. The measures would strengthen existing controls on American capital flowing into technologies with potential military applications. Areas covered include hypersonic weapons, sensitive biotechnology, and brain-computer interfaces. Treasury Secretary Scott Bessent said the proposals would prevent adversaries from using U.S. investment to develop technologies threatening American security, while giving investors clearer guidance. Biotechnology could become the most contentious element. Treasury identified risks involving biological weapons, intelligence gathering and mass surveillance, with proposed prohibitions covering certain cell and gene treatments and immunotherapies. The initiative comes despite a recent easing of trade tensions. U.S. President Donald Trump and China's leader, General Secretary Xi Jinping, agreed at their Washington summit last month to extend their trade truce until January, underscoring how commercial negotiations coexist with deeper strategic competition. The proposals could trigger a lobbying battle with the American biotech industry, which increasingly relies on China for early drug development. The Biotechnology Innovation Organization warned that excessively broad restrictions could create uncertainty and weaken U.S. competitiveness. However, some pharmaceutical transactions would remain outside the rules. American companies, including Pfizer and others, have paid Chinese developers billions of dollars for rights to experimental medicines. According to Capstone policy advisor Will Humphrey, licensing agreements paid in cash without an accompanying equity investment would avoid the restrictions. The regulations remain subject to public comment before being finalized, leaving investors and drug makers watching closely for changes to their scope and implementation. Meanwhile, Huawei's growing collaboration with artificial intelligence developer DeepSeek is narrowing the gap with NVIDIA's hardware and software ecosystem, according to research firm SemiAnalysis, potentially strengthening China's drive for technological self-reliance. The partnership combines Huawei's Ascend chips with DeepSeek's expertise in developing efficient AI models and software. SemiAnalysis said recent software releases and testing on Huawei's Ascend 950 PR suggest that companies are making progress in reducing dependence on American technology. DeepSeek recently released six software modules tailored to Ascend, mirroring tools that previously developed for NVIDIA chips. These include an Ascend-compatible version of MindSpore, a programming language that simplifies the development of kernels, specialized code that helps applications use chip hardware efficiently. Such tools address a crucial competitive challenge. NVIDIA's dominance rests on its processors and the extensive software ecosystem supporting them. Making Huawei's hardware easier to program could encourage broader adoption among Chinese developers. Semi-analysis expects DeepSeek could rely primarily on Huawei's technology stack by 2027 or 2028, supported by commercial incentives and political pressure to build a domestic ecosystem. That prospect carries implications for Washington's export controls, which restrict China's access to advanced American chips and chipmaking equipment. The restrictions could accelerate the development of alternatives that eventually weaken U.S. influence over global AI infrastructure. However, substantial limitations remain. SemiAnalysis said the Ascend 910B still trails NVIDIA's H100, which began shipping in 2022, in absolute performance. Compatibility challenges also persist beyond DeepSeek's specialized computing configurations, particularly for developers using standard x86 host processors. Nevertheless, the partnership's benefits could spread. Other companies running DeepSeek models can reuse optimized code and deployment methods, while competing laboratories could build on shared software capabilities. If developers contribute improvements, those gains could compound, gradually turning a close partnership between two Chinese companies into a broader challenge to NVIDIA's position in China and other markets abroad. Okay, that is today's episode of China Update. Thank you so much, everybody, for watching. have a good Saturday have a restful weekend and i hope to see you for a new week of updates on monday