Chinese authorities have put forth a draft proposal this month aimed at rejuvenating the country’s sluggish stock market through a significant reduction in stamp duty. Informed sources reveal that the proposal suggests cutting the current 0.1% stamp duty on securities trading by either 20% or 50%, with indications favoring the larger reduction. If implemented, this would mark the first such cut since 2008, with a potential announcement expected as early as Friday.
The move follows a determined commitment from China’s leadership to breathe new life into the world’s second-largest stock market, which has been grappling with a lackluster economic recovery and a deepening debt crisis in the property sector.
Market experts, however, remain skeptical about the lasting impact of this proposed measure. Xie Chen, a fund manager at Shanghai Jianwen Investment Management Co., suggested that while the policy change might provide a short-lived boost, any resulting market rebound could be short-lived—lasting only a couple of days or even shorter. Xie emphasized that a reversal in market sentiment would likely hinge more on prospects of economic improvement rather than the stamp duty reduction.
With China’s economy, the world’s second-largest, showing sluggish performance in the second quarter due to subdued domestic and international demand, the esteemed CSI300 Index has hit a nine-month low, already down 11% from its peak in April. Nonetheless, investors are pressing for more substantial government actions, including considerable fiscal expenditures.
The State Council Information Office emphasized the need for a stable market environment as a precondition for market revival and sentiment improvement. In addition to the stamp duty reduction, Beijing has already deployed several alternative measures, including a smaller-than-anticipated cut in lending benchmarks.
Simultaneously, the China Securities Regulatory Commission (CSRC), the country’s securities regulatory body, has unveiled a comprehensive package of proposals, including support for share buybacks and encouragement for long-term investment, all aimed at boosting the $11 trillion stock market.
From an economic perspective, the potential reduction in stamp duty could have implications for fiscal revenue. Stamp duty on securities transactions contributed 1.35% or 276 billion yuan ($3.02 trillion) to last year’s fiscal revenue total of 20.37 trillion yuan ($3.02 trillion).
In summary, while the proposed stamp duty reduction might offer a temporary lift to the stock market, underlying concerns persist due to the broader lack of economic improvement. Evidently, more significant policy decisions are necessary to restore investor confidence.
Source: Reuters
