Finance

How US-China Trade Spat & China’s Leadership Meet Weigh Down Shanghai Composite, Hang Seng

Chinese and Hong Kong stocks plunged this week due to trade tensions, AI profit-taking, and an upcoming Chinese meeting.

byAndres Castro

October 17, 2025, 9:35 AM

A graphic showing the US and China flags and maps overlaid by a volatile red financial line graph representing trade and stock market tension.

A graphic representing the volatile financial relationship and trade war between the United States and China. By MDL.

Executive Summary

Chinese and Hong Kong stock markets, including the Shanghai Composite and Hang Seng benchmarks, experienced significant declines, heading for their steepest weekly losses in months.

Heightened investor caution due to escalating trade tensions between the United States and China was a primary factor in the market downturn.

Profit-taking in artificial intelligence (AI) shares and anticipation of a crucial Chinese leadership gathering next week also contributed to the market declines.

The Story So Far

The significant declines in Chinese and Hong Kong stock markets are primarily driven by escalating trade tensions between the United States and China, which have led to new port fees and sanctions, creating uncertainty for investors. This caution is further amplified by anticipation ahead of a crucial closed-door meeting of China’s ruling Communist Party, where the country’s 15th five-year development plan is expected to be discussed, prompting a wait-and-see approach among market participants.

Why This Matters

The significant declines in Chinese and Hong Kong stock markets signal growing investor apprehension, driven by escalating U.S.-China trade tensions and the anticipation of potential new policy directions from China’s upcoming leadership gathering. This heightened uncertainty suggests a period of sustained volatility for regional economies and global trade, as market participants await clarity on future geopolitical relations and domestic economic strategies.

Who Thinks What?

Investors are exhibiting heightened caution, adopting a wait-and-see approach, and engaging in profit-taking amid escalating U.S.-China trade tensions and anticipation of a crucial Chinese leadership gathering.

Analysts at UBS observe increased downside risk and higher uncertainty in the market, suggesting clients may favor sectors such as technology, basic materials, and new consumer for the remainder of the year.

Chinese and Hong Kong stock markets, including the Shanghai Composite and Hang Seng benchmarks, experienced significant declines on Friday, setting them on track for their steepest weekly losses in months. The downturn is primarily attributed to heightened investor caution amid escalating trade tensions between the United States and China, alongside profit-taking in artificial intelligence (AI) shares, and anticipation ahead of a crucial Chinese leadership gathering next week.

Market Performance Details

China’s blue-chip CSI300 Index dropped 1.3 percent, while the Shanghai Composite Index lost 1 percent on Friday. The Hong Kong benchmark Hang Seng was down 1.6 percent. So far this week, the CSI300 index has shed 1.2 percent, positioning it for its largest weekly loss since late-July, and the Hang Seng Index has fallen 3 percent, extending losses from the prior week.

Sector-specific declines were also evident. Chinese semiconductor shares traded onshore fell 2.8 percent, and the tech-focused STAR50 index dropped 2.6 percent. Tech majors listed in Hong Kong have seen a nearly 7 percent decline this week, marking their worst performance since April 7.

Underlying Factors

Investor sentiment has largely shifted, with markets turning volatile as participants adopt a wait-and-see approach amid political developments, according to analysts at UBS. They noted increased downside risk and higher uncertainty compared to a week ago. For the remainder of the year, UBS suggests clients may favor sectors such as technology, basic materials, and new consumer.

Geopolitical Tensions and Policy Anticipation

Trade tensions between the United States and China escalated this week, with both nations implementing additional port fees on ocean shipping firms. Additionally, China imposed sanctions on U.S. affiliates of shipbuilder Hanwha Ocean. A U.S. State Department spokesperson stated on Friday that these Chinese sanctions aim to undermine South Korea-U.S. cooperation and coerce Washington’s Asian ally.

Further contributing to market caution is the upcoming closed-door meeting of the elite Central Committee of China’s ruling Communist Party. Scheduled from Monday to Thursday, the gathering is expected to discuss, among other topics, the country’s 15th five-year development plan.

Outlook

The convergence of escalating trade disputes, profit-taking in key technology sectors, and an impending significant political gathering in China has created a climate of uncertainty, driving the notable declines in Chinese and Hong Kong equity markets this week.