China halved the stamp duty on stock trading effective Monday in the latest attempt to boost the struggling market as a recovery sputters in the world’s second-biggest economy. The finance ministry said in a brief statement on Sunday that it was reducing the 0.1% duty on stock trades “to invigorate the capital market and boost investor confidence.” The move comes after China’s leaders vowed late last month to jolt the world’s second-largest equity market, which has been reeling as the country’s post-COVID economic recovery flags and a property debt crisis deepens.
China’s share markets rose on the news, with the Shanghai Composite index up 4.3 percent at midday. The Shenzhen Commodity Exchange’s benchmark index was up 4.9 percent, the biggest gain since April 2009. However, investors are still worried about slowing domestic growth and sluggish corporate earnings. “Such a policy will likely give a short-term boost to the market but won’t have much effect over the long run,” said fund manager Xie Chen at Shanghai Jianwen Investment Management Co. He added that a reversal in the long-term trend of the market would be triggered by expectation of economic improvement, rather than by stamp duty cuts.
The seller levied Stamp duties unilaterally and made up a small fraction of total transaction costs. The cut will save Chinese investors about 128 billion yuan in the first seven months of this year. The cut is the fourth since China introduced the levy in 1990, and it has historically boosted trading volume, according to data from the Securities Regulatory Commission and the Ministry of Finance.
The government has also reduced lending rates recently, aiming to encourage household consumption and offset weakness elsewhere in the economy. However, economists are increasingly concerned that the revival will stall if China cannot convince households to spend more, with household consumption making up just 36% of GDP, the lowest in the world.
The government is also preparing to introduce new measures to support the stock market, including allowing companies to buy back shares and encouraging longer-term investments. It also seeks to increase transparency in the capital market, including improving rules on foreign investments. It is expected to unveil further details of these plans later this week. These moves come after China’s central bank lowered the one-year loan prime rate this week to spur consumption and keep the economy growing at its desired pace. The country is a significant consumer of crude oil in the global market, and any slowdown in its economy will impact the demand for the commodity. The state-owned CNPC and Sinopec, the two largest state energy firms, have cut their production forecasts for this year. The lower output could reduce demand for oil from the country and push prices up. The companies’ latest price cuts are aimed at cushioning the impact of the lower production forecasts. The slashing of production forecasts is another sign that Beijing is taking the threat of a slowdown in China seriously.
