China’s stock market has already absorbed the shocks from the escalation of the trade war with the United States and any future risks are “controllable”, according to China’s securities market watchdog chief, in an attempt to calm nerves as the tensions between Beijing and Washington further threaten investor confidence. The benchmark Shanghai composite stock index lost nearly 6 per cent in May as the trade negotiators failed to reach a deal to end the trade war, which has rumbled on since July last year. The index also lost 6 per cent on the first trading day after US President Donald Trump announced that the US would increase tariffs on US$200 billion of Chinese products. “The market has gradually turned rational. From the long-term perspective, we are very confident to keep the stability and health of capital market,” Yi Huiman, the chairman of the China Securities Regulatory Commission (CSRC), told state broadcaster CCTV on Sunday. But the statement had little immediate impact as the Shanghai composite index dropped 0.49 per cent on Monday morning. Yi is the latest Beijing policymaker to play down any potential impact from the trade war following earlier statements from China Banking and Insurance Regulatory Commission head Guo Shuqing and a vice-minister of agriculture Han Jun. The government has repeatedly been trying to talk up its stock prices after Vice-Premier Liu He said in October that the trade war with US had more “psychological impacts” on China’s stock market than real ones. But China’s stock market remains weak as the benchmark index is well below 3,000, meaning a lower price to earnings ratio on average. According to Yi, who only took the position four months ago, the price to earnings ratio in Shanghai is only 13, much lower than the 19 seen with the Dow Jones index. The market has gradually turned rational. From the long-term perspective, we are very confident to keep the stability and health of capital market. Yi Huiman Yi added that China’s stock prices are no longer inflated by “leveraged finance”, a key factor behind China’s stock price bubble in late 2014 and early 2015 before the market rout in the summer of 2015. “The resilience of the whole capital market has been further improved and the risk resistance have been strengthened,” Yi said. “Our leveraged finance is only 1.2 trillion yuan (US$174 billion), or 20 per cent of 2015 [when the market rout happened]. “As for whether there will be volatile fluctuations in capital market owing to the dramatic changes in external environment, we have done full research and we have prepared a series of tool kits.” Yi, though, is pinning some hopes on overseas investment to bring fresh funds into China’s onshore stock markets, insisting that China’s capital market opening-up will continue. The CSRC will deepen and improve stock connect mechanisms, gradually expand exchange-traded bond markets and open futures market wider. Yi Huiman “The CSRC will deepen and improve stock connect mechanisms, gradually expand exchange-traded bond markets and open futures market wider,” he said. Yi insisted that China’s new scientific and technology innovation board, which is expected to be launched soon, will not be affected by the trade war. More than 100 technology firms have applied for the initial public offering on the board, which was first introduced by President Xi Jinping at the China International Import Expo last year.