By Bloomberg News

(Bloomberg) — Chinese stocks fell as investors responded to heightened trade tensions upon their return from a week-long holiday.

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The CSI 300 Index (000300.SS) dropped 0.6% on Wednesday, its first trading session after the Lunar New Year holiday. The Hang Seng China Enterprises Index slumped about 1% following a 3.5% jump in the previous session.

What seemed like a mild open suddenly turned volatile following a report that US Postal Service is temporarily suspending inbound parcels from China and Hong Kong. That came a day after Washington and Beijing slapped tariffs on each others’ exports. While hopes remain for an eventual deal that can defuse tensions, investors are reducing risk as uncertainty remains high.

The outlook for equities remains uncertain, hinging on further tariff developments as well as China’s economic recovery. US President Donald Trump said there’s no rush to talk to Chinese leader Xi Jinping, adding that he’ll speak at an appropriate time.

Holiday spending data suggest consumption is on the mend, though a broader upswing remains to be seen. Box office receipts soared to a historical high of $1.3 billion, and the number of trips taken by passengers and air travelers reached a single-day record on Feb. 3. Still, a private survey showed services activity unexpectedly slowed last month.

“Sino-US rivalry seems to have ricocheted higher with tariffs and this parcel development,” said Kok Hoong Wong, head of institutional equities sales trading at Maybank Securities. “That’s offsetting the rather upbeat Chinese New Year domestic spending data.”

The CSI sub-gauge for info tech stocks outperformed, rising nearly 3%. Gains were led by tech companies that are seen to benefit from the cheaper artificial intelligence model by DeepSeek — a Chinese AI startup whose latest model has drawn awe for its competitiveness with world-leading AI bots.

Yuan Fixing

On the currency front, China extended its support for the yuan by setting its daily reference rate for the managed currency at a level stronger than 7.2 per dollar, as trade tensions with the US add to the depreciation pressure on the yuan. The central bank set the fixing at 7.1693 per dollar.

The onshore yuan fell as much as 0.5% after the fixing before trimming its loss. The offshore unit clawed back earlier weakness to gain 0.2% versus the greenback.

“My view is tariff can only go up from here, unlikely to be down, while the milder starting tariffs can potentially delay any major stimulus,” said Xin-Yao Ng, an investment director at abrdn Plc (SLFPY) in Singapore. “DeepSeek to me might be a sentiment positive for China tech but I don’t see that feeding into profits because there’s a massive price war going on.”

—With assistance from Winnie Hsu and John Cheng.

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