Explaining China Stocks' Surprise Reaction to Trump Auto Tariffs News

There’s a familiar pattern at play. U.S. President Donald Trump announces new tariffs. “Boy, that’ll hit Asian shares hard,” I think. So, here in Hong Kong, I look for the market response.

And stocks go up. The Hong Kong benchmark is up 0.4% on Thursday, after the U.S. administration imposed extra tariffs of 25% on cars made overseas. U.S. tech stocks fell instead.

The Hong Kong market also rose 0.6% on Wednesday. Again, I looked for the hit Asian shares would take, this time as the U.S. Commerce Department added 53 Chinese companies to its “entity list.” U.S. companies and individuals are barred from trading with such companies, minus a special exemption that’s very hard to get.

Japan, Korean Stocks Off

There’s a stock-market impact in Tokyo and Seoul on Thursday from the 25% car tariff, for sure. The vehicle tariffs will affect Japanese and Korean carmakers, if they import parts or entire vehicles into the United States. But the new tariffs will impact U.S. carmakers that source parts from abroad too.

The lack of response for China stocks is because the companies added to the entity list are mainly affiliates of companies that were already on the list, in both cases generally unlisted. And Chinese electric vehicles already face a U.S. import tax of 100%, put in place under the Biden administration, which means there are already essentially no Chinese cars entering the United States.

It’s into this buoyant Hong Kong market that the world’s largest electric-vehicle battery maker is prepping to list its shares in the city. A Hong Kong listing will mark the first time that it becomes simple for international investors to buy shares of Contemporary Amperex Technology Co. (SZ:300750), better known as CATL.

Biggest Company You Haven't Heard of?

I’ve frequently referenced CATL in my stories, but largely in passing, since the company is a giant that’s been off the radar for international investors. It is huge, with a market capitalization of C¥1.1 trillion ($156.9 billion), which means it and EV maker BYD BYDDY (HK:1211) are neck and neck as the largest listings in Shenzhen. BYD also makes batteries, meaning it’s CATL’s fiercest rival.

CATL is currently listed but only in Shenzhen, where it went public in 2018. The tech-focused Shenzhen mainland market is off limits to all but the largest global investment banks, and even then only if they can secure an allocation to trade mainland A shares.

CATL applied in February to list in Hong Kong, without much detail other than the investment banks working on the deal. Now the company says it has secured approval from the mainland stock regulator to list Hong Kong.

It has filed to list up to 220 million shares. It’s likely to look to raise as much as $5 billion.

Its initial application is mostly redacted but does state that the company will use some of the share-sale proceeds to fund construction of a factory in Hungary. The company’s board has approved investment of as much as €7.3 billion ($7.9 billion) in the factory, in the city of Debrecen, a major expansion in the European Union. Its first overseas factory broke ground in Germany, in Erfurt, in 2019.

Hong Kong Stock Sales Back in Action

As I noted in my last column, we’ve just seen BYD raise $5.6 billion in a secondary-share sale in Hong Kong on March 4, followed in short order by rival Xiaomi XIACY (HK:1810), which raised $5.9 billion on Tuesday, to fund its expansion away from its smartphone specialization and into a range of EVs, its earliest models selling well so far.

The share sales are the largest since 2021, when grocery-delivery app operator Meituan MPNGY (HK:3690) raised $10 billion in a secondary stock-and-bond offering, and short-video app operator Kuaishou Technology KSHTY (HK:1024) raised $6.2 billion in an initial public offering.

Hong Kong has seen companies pull listings or push them back as it suffered through four straight years of decline, leaving share prices at the start of last year at much the same level as they began this century.

The Chinese government’s pledge to stimulate the economy with fiscal spending spurred a resurgence in Hong Kong last September. The rally then faded, only to become turbocharged both by the introduction of Chinese artificial intelligence models such as DeepSeek … and acceptance of the notion that Trump tariffs wouldn’t be nearly as harsh on China as candidate Trump had promised on the campaign trail.

Mainland markets haven’t moved nearly as much as Hong Kong stocks. CATL’s Shenzhen shares are flat for the year, after rallying as much as 65.1% last September, then giving half that share-price run up back. They’re 32.2% below the record levels they set in 2021, when Chinese stocks shot up, a false dawn rally based on the incorrect notion that the COVID-19 pandemic was coming to an end.

CATL to Appeal Pentagon List Inclusion

Mainland stocks are highly momentum-driven, based on sentiment among retail Chinese investors. Hong Kong stocks, by contrast, are where global investment managers express their sentiment on Chinese stocks. Coming into this year, the general agreement was that China was “uninvestable,” Hong Kong stocks paying the price.

Investors the world over are free to buy and sell Hong Kong stocks as they please, with no restrictions. If it’s able, I’d wager CATL will ultimately use the Hong Kong listing to establish American depositary shares that offer U.S. investors direct access to the stock.

That’s if it’s able. At the start of this year, CATL was the “other company” added alongside Tencent Holdings TCEHY (HK:0700) to a Pentagon list of “Chinese military companies,” a development I highlighted in a column at the time.

Both Tencent and CATL are appealing that designation. It doesn’t come with any direct implications other than the companies being barred from supplying the U.S. Department of Defense with goods and services as of June 30, 2026.

Xiaomi was the first company to successfully appeal and get itself taken off that list. It’s possible that inclusion could influence the compilers of other lists (so many lists!), like the U.S. Commerce Department, which maintains that entity list… which you really don’t want to end up on, if you’re a company with ambitions on attracting U.S. investment.

CATL claims a 37.9% share of the global battery market for EVs as of last year, twice the share of its nearest rival, BYD. CATL dominates its home market with 72% of the China market for higher-priced passenger EVs (since BYD corners the lower end), 80% of the e-bus market and 71% of the market for e-trucks.

Sales Slipped Last Year for First Time

CATL supplies batteries for the Tesla TSLA factory in Shanghai. It counts nine out of 10 of the largest makers of EVs among its battery customers, a roster that also includes BMW BMWYY, Ford F, Hyundai Motor HYMTF (KR:005380), Stellantis STLA, Volkswagen VWAGY and Toyota Motor TM (T:7203).

It’s being hurt, however, by the fierce price war at home. BYD sells EVs for less than $10,000 inside China, and even higher-end manufacturers have been forced to slash production costs in response. Total CATL sales slipped 9.8% last year, as a result of that pressure, to C¥362 billion ($49.8 billion), the first annual decline since it started reporting revenues in 2015, although net profit still rose 15.0%.

It’s the stocks of those global car manufacturers that are suffering, slightly, on Thursday. Toyota slipped 2.0% in Tokyo, and Hyundai fell 4.3% in Seoul. But both insulate themselves with major production bases inside the United States.

In Japan, the Dow-like Nikkei 225 blue-chip index ended down 0.6% today, heavy on the country’s major exporters. But it’s a mild cut, not a bloodbath. In fact, the broad-market Topix The Topix captures all the “prime market” companies listed in Tokyo, giving it a bigger domestic bent, is narrowly in the green today, up 0.1%. In South Korea, the Kospi benchmark ended down 1.4%, undoing gains on Wednesday.

CATL will offer a truly global play on EVs if and when it does list in Hong Kong. The company says it is open to expanding with a U.S. factory — if the Trump administration clears that. Founder Robin Zeng said last year that its initial overtures to the U.S. government were rebuffed.