Trade tensions, deflation fears take toll on Chinese stocks

China stocks retreated on Friday, after latest official data raised deflation fears, while investors were worried about uncertainties over the Sino-U.S. trade negotiations. The blue-chip CSI300 index ended down 1.9 per cent at 3,338.70, while the Shanghai Composite Index dropped 1.9 per cent to 2,682.39. However, for the week, major indexes gained as risk appetite improved after the end of the Lunar New Year holiday. SSEC gained 2.5 per cent, while CSI300 was up 2.8 per cent, both posting their biggest weekly gain in three months.

China's factory-gate inflation slowed for a seventh straight month in January to its weakest pace since September 2016, raising concerns the world's second-biggest economy may see the return of deflation as domestic demand cools. Consumer inflation, meanwhile, eased in January from December to a 12-month low due to slower gains in food prices, official data showed on Friday, despite the Lunar New Year holiday, which typically pushes up demand for food.

There are also concerns over the progress of the Sino-U.S. trade talks. The Trump administration's top two negotiators in trade talks with China will meet on Friday with Chinese President Xi Jinping, but there has been no decision to extend a March 1 U.S. deadline for a deal, White House economic adviser Larry Kudlow said on Thursday.

"Investors are locking in profits after a recent unexpected strong rally, which caught many fund managers off-guard," said Yan Kaiwen, analyst, China Fortune Securities. There are also uncertainties around the Sino-U.S. trade spat which could weigh on the short-term trend, Yan added.

However, central bank data that came after market showed China's total social financing (TSF), a broad measure of credit and liquidity in the economy, hit a record 4.64 trillion yuan ($685 billion) in January, far more than expected. Around the region, MSCI's Asia ex-Japan stock index was weaker by 1.15 per cent, while Japan's Nikkei index closed down 1.13 per cent.

At 07:13 GMT, the yuan was quoted at 6.7768 per U.S. dollar, 0.07 per cent weaker than the previous close of 6.7718. The largest percentage gainers in the main Shanghai Composite index were Shenyang Jinshan Energy Co Ltd, up 10.27 per cent, followed by Hunan New Wellful Co Ltd, gaining 10.08 per cent and Triumph Science & Technology Co Ltd, up by 10.08 per cent.

The largest percentage losers in the Shanghai index were HUAYU Automotive Systems Co Ltd down 6.08 per cent, followed by Zhejiang Jiaao Enprotech Stock Co Ltd losing 5.47 per cent and Lanzhou Greatwall Electrical Co Ltd down by 5.4 per cent. So far this year, the Shanghai stock index is up 7.6 per cent and the CSI300 has risen 10.9 per cent, while China's H-share index listed in Hong Kong is up 8.1 per cent. Shanghai stocks have risen 3.78 per cent this month.

About 19.60 billion shares were traded on the Shanghai exchange, roughly 126.2 per cent of the market's 30-day moving average of 15.54 billion shares. The volume in the previous trading session was 19.70 billion. As of 07:14 GMT, China's A-shares were trading at a premium of 17.38 per cent over the Hong Kong-listed H-shares.

(With inputs from agencies.)