If Donald Trump is the new George Soros, history shows confidence is China’s best weapon in a trade war

Twenty-one years ago, George Soros decimated currencies in Southeast Asia with his hedge fund, but Hong Kong authorities managed to underpin confidence by using its vast foreign exchange reserves, foiling speculators’ fierce assault against the Asian financial centre.

While today a trade war seems to have replaced a currency war, and US President Donald Trump has replaced Soros, confidence is still the best defensive weapon that Beijing has to minimise casualties.

Recently, a series of market reactions have revealed Chinese investors’ bearish attitude to the ongoing trade frictions between Washington and Beijing: the Shanghai Composite Index has been the worst performer among the world’s major markets and the renminbi experienced the biggest ever fall against the US dollar in June. The Chinese market has already been affected, even though the trade war has barely begun.

In the face of this unprecedented challenge, the Chinese government has taken constructive measures: notably, it has loosened monetary policy by cutting the reserve requirement ratio by 50 basis points on June 24 to offer the authorities sufficient money to keep the market from collapsing.