China cuts stamp tax to revive stock market
China cuts stamp tax to revive stock market
China slashed the trading cost for stock investors on Wednesday in the latest attempt to rebuild confidence in its flagging equity market.The stamp tax on stock trading was cut to 0.1 percent from the current 0.3 percent starting from Thursday, the China Central Television (CCTV) reported, citing the Ministry of Finance and the State Administration of Taxation.
The new measure came after the country's stock market has fallen nearly 50 percent from its peak since mid-October in the face of a mixture of factors, including the over-valuation of shares, tight monetary policies, and concerns over the economy and corporate earnings due to a global economic slowdown.
Coupled with the declines was plummeting investor confidence, as evidenced by the lackluster sales of once red-hot investment funds. That prompted more and more financial experts to join the chorus for regulators to act.
At an executive meeting of the State Council chaired by Premier Wen Jiabao on Tuesday, decision makers decided to push forward the healthy development of the country's capital market, according to the CCTV.
The reduction in trading cost followed new trading rules announced during the weekend that ordered the selling of big amount of shares to be conducted on a bloc trading system.
Intended to relieve the selling-pressure on the market, the rules, however, failed to put much faith into jittery investors who turned to profit-taking after an immediate rebound.
The benchmark Shanghai Composite Index (SCI) tumbled more than four percent on Tuesday to fall below 3,000 points, the lowest level in 13 months, before rallying to positive territory. The gauge jumped 4.15 percent on Wednesday.
The tax move came 11 months after the trading cost was tripled to 0.3 percent to take the steam out of a spectacular bull run that saw the SCI more than quadrupled in less than two years.
April 23 -- China cut the tax on share trading to support stocks after a 35 percent plunge in the benchmark index, the world's second-worst performing this year.
Stamp duty charged on stock trades will be lowered to 0.1 percent from 0.3 percent effective tomorrow, the government said in a statement on its Web site after the close of trading today.
The CSI 300 Index rose 4.8 percent before the announcement on speculation the government would seek to revive confidence after $1.9 trillion was wiped from the value of equities this year. The index, which surged sixfold in 2006 and 2007, has slumped on concern efforts to stem inflation close to an 11-year high will curb earnings growth.
``This is the most effective thing the government could have done in the short term to give the market more confidence,'' said Michelle Qi, a portfolio manager at Bank of Communications Schroders Fund Management Co. in Shanghai, which oversees $7 billion. ``I don't think we're going to rise above where we ended last year though because in the end, it's still about economic conditions.''
The reduction, which reverses a tripling of the tax last year, had been predicted by the state-run China Business Journal and analysts including Jing Ulrich, Hong Kong-based chairman of China equities at JPMorgan Chase & Co.
The government raised stamp duty to 0.3 percent on May 30, 2007, to cool a rally that was drawing more than 300,000 new investors a day. The CSI 300 closed today at 3453.73, 17 percent below its level on May 29.
`Clear Signal'
``The market will bottom out,'' said Wei Wei, an analyst at West China Securities Co. in Shanghai. ``It's a clear signal from the government that it thinks of the decline as overdone.''
So far, measures to boost stocks have failed to stem the decline. The government said on the weekend shareholders selling more than 1 percent of a stock within a month must do so in single trades, keeping the transactions off the open market to support equity valuations.
China Southern Airlines Co., the nation's biggest carrier, has lost 61 percent of its value this year, the biggest decliner among the 300 stocks on the CSI index. PetroChina Co., the world's first $1 trillion company, has slumped 47 percent, falling below its November offering price in Shanghai.
The Shanghai Composite Index, which tracks the larger of China's two stock markets, dropped to 50 percent below its October record yesterday.
Valuation Gap
China's stocks remain the most expensive relative to earnings among markets in Asia tracked by Bloomberg. The CSI 300 is valued at 26 times reported earnings, compared with 16 times for Japan's Nikkei-225 Stock Average and 15 times for Hong Kong's Hang Seng Index. The S&P 500 Index is trading at 22 times earnings.
Stocks surged after a four-year bear market ended in July 2005 as the government implemented a plan to make state-owned shares tradable. The rally has lost steam on concern earnings growth will slow and new share sales by companies including Ping An Insurance (Group) Co. will overwhelm demand.
China's consumer prices rose 8.3 percent in March as food costs jumped and after the worst snowstorms in half a century destroyed crops and paralyzed transport.
Premier Wen Jiabao pledged ``forceful'' measures last month to tame inflation. The central bank told commercial banks to set aside more reserves for a third time this year on April 16, and three days earlier Governor Zhou Xiaochuan said there's still room to raise interest rates.
``The economic environment -- higher inflation and tighter monetary policy -- is not positive for the stock market,'' said Stephen Green, head of China research at Standard Chartered Plc in Shanghai. ``The government is becoming more ambitious about calming the market.''
Economic Growth
China's stock market peaked in value on Jan. 14 at $4.8 trillion and had lost $1.9 trillion through yesterday, equivalent to the value of Canada and Germany's stock markets.
The Shanghai Composite rose 4.2 percent to close at 3278.33, and is 46 percent below its October peak. The Shenzhen Composite Index climbed 4.9 percent to 960.214.
``We will see the Shanghai Composite Index climb to around 4,000 points on the news,'' said Wu Kan, a fund manager at Dazhong Insurance Co. in Shanghai. ``How far the market will rise depends on whether the government will successfully curb inflation and avoid slowing economic growth too much.''
China's economy, the world's fourth largest, grew 10.6 percent from a year earlier in the first three months, expanding by more than 10 percent for a ninth straight quarter.
``The markets have fallen a long way but while inflation is high, growth is still robust so there are strong fundamentals to support the market,'' said Ben Simpfendorfer, strategist at Royal Bank of Scotland in Hong Kong.
BEIJING, April 23 (Reuters) - China has cut its stock-trading tax to 0.1
percent from 0.3 percent, the government said on Wednesday, aiming to bolster
the country's markets which have been in freefall for three months.
The
long-rumoured stamp tax cut will take effect on April 24.
Investors have been
pushing for such a move, with the country's benchmark index .SSEC down about 50
percent from its peak last October.
The cut returns the stamp tax to its
level last May, when the government raised it to cool the market, which had been
surging in a two-year bull run that ultimately boosted the key index nearly
six-fold.
Lin Songli, analyst at Guosen Securities in Beijing, said the
decision was expected because the market had sunk as far as the government was
willing to tolerate.
"If the market continues to decline, it may hurt the
real economy, especially domestic consumption," he said.
"The next step for
the government will be to slow down the approval of IPOs and the issuance of
additional shares," he added.
Talk that the government was on the verge of
cutting the unpopular tax has periodically boosted share prices.
The
benchmark Shanghai Composite Index rose 4.15 percent on Wednesday, partly on
hopes that regulators might step in to prop up the market, after slipping the
previous day to its lowest in 13 months.
Both sellers and buyers will be
required to pay the 0.1 percent trading tax, contrary to speculation that one or
the other might be exempted.
WORRIES
The government has grown worried
about mounting anger among ordinary investors, largely expressed in online
forums, who had not counted on the stock market diving when they bought shares
in its heady days.
The rocky market has also made fund-raising trickier for
companies, as they have delayed initial public offerings to wait for conditions
to settle.
Stocks tumbled 6.5 percent on the day after the stamp tax was
tripled last May. Eyes will be on the market on Thursday to see whether the tax
reduction can propel shares to a similar degree but up.
The market was a key
topic at a meeting of China's State Council, or cabinet, on Wednesday, when
Premier Wen Jiabao said the country's beleaguered stock exchanges had made real
strides in recent years but still had a way to go before they could be
considered mature.
Earlier Chinese media reports of the cabinet meeting said
the government had discussed draft laws to beef up supervision of securities
houses and require better risk management, but made no mention of the stamp tax
cut.
"It is a long-term task to build a capital market that is transparent,
efficient, rational in structure, perfect in function and safe in operation,"
Wen said, according to state radio.
The stamp tax delivered nearly 60 billion
yuan ($8.60 billion) to government coffers in the first quarter this year, a
drop in the bucket compared to overall tax revenues of 1.51 trillion
yuan.
Some analysts have argued that a lower stamp tax would encourage a
higher volume of stock trading, allowing the government to recoup lost revenues.
($1=6.980 Yuan) (Reporting by Douglas Huang, Langi Chiang; Writing by Simon
Rabinovitch; Editing by Edmund
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