As Trump threatens tariffs on China, the Chinese market pins its hopes on a massive stimulus announcement

• Chinese markets rose after Trump's US election victory, despite tariff threats.
• The markets boost comes as China is reportedly considering a $1.4 trillion debt plan.

China's stock markets climbed higher on Thursday following Donald Trump's victory in the US presidential election.

The rise comes despite campaign pledges from Trump, a China hawk, to slap a 10% blanket tariff on all imported goods. He has threatened tariffs of more than 60% on Chinese goods.

On Thursday, China shares rose with the benchmark CSI 300 Index, closing 3% higher. Hong Kong's Hang Seng Index closed 2% up.

Market sentiment was buoyant amid hopes for news of a stimulus plan from the Standing Committee of the National People's Congress' going meeting, which ends on Friday.

"The odds for a larger policy support package will rise somewhat with a Trump victory," wrote Lynn Song, the chief economist for Greater China at ING bank, on Wednesday.

China's top legislative body is considering a plan to raise $1.4 trillion in extra debt over the next few years to fund a part of an economic rescue package, Reuters reported last week, citing two sources with knowledge of the matter.

Thursday's optimism in the Chinese markets contrasted with lackluster performance in Japan and South Korea, where the Nikkei 225 and the Kospi Index ended the day little changed.

Analysts are also watching to see if Beijing will devalue the Chinese yuan now that Trump has won.

"Beijing might look to devalue the yuan as they did in 2018-2019 to counter tariff effects and boost export competitiveness," wrote Dilin Wu, a research strategist at brokerage Pepperstone, on Wednesday.

However, this risks inflation and capital outflows in China, she added. The country is facing multiple economic challenges amid a real-estate crisis and high youth unemployment.

On Thursday, China lowered its daily reference rate for the yuan to the lowest since late 2023.

China is preparing for Trump for 2.0 but still lacks leverage

Despite the market optimism in China, analysts say Beijing could face a tough trade landscape.

"I think the challenge here is that China is still at a structural disadvantage in a trade war because they lack the symmetrical space," said Rick Waters, the managing director of Eurasia Group's China practice, at a press briefing on Thursday about the global implications of the US elections.

"They lack the ability to put tariffs on the US when the US does that to them," added Waters, who was the US State Department's top China policy official under the Biden administration.

In Trump's first term, the US and China slapped retaliatory tariffs on each other. But Beijing is now left with "very little" to work with.

However, over the last four years, Waters said Beijing has developed a framework of sanctions for individuals and companies that align with US policies that are anathema to China's interests. The moves include more export controls, including for critical minerals and rare earths.

"The first trade war was a game changer; many companies were caught off guard, and investors were left scrambling," wrote ING's Song.

"This time around, Trump's proposed tariffs have been in consideration for some time and should come as no major surprise," he added.