global markets and bond

China Considers Stamp Duty Reduction to Revitalize Stock Market

Chinese authorities have recently submitted a draft proposal to the cabinet this month, aiming to breathe new life into the nation’s beleaguered stock market. According to three informed sources, the proposal calls for a substantial reduction in the existing 0.1% stamp duty on securities trading, potentially slashing it by either 20% or 50%, with strong indications favoring the latter. This move marks the first reduction in stamp duty since 2008, and an announcement could be forthcoming as early as this Friday.


The envisaged reduction in stamp duty comes in the wake of a resolute commitment by China’s leadership to rejuvenate the world’s second-largest stock market. This market has been grappling with a prolonged sluggishness due to a sputtering economic recovery and an escalating debt turmoil within the property sector. 


Market pundits, however, harbor reservations about the long-term impact of the proposed measure. Xie Chen, a seasoned fund manager at Shanghai Jianwen Investment Management Co., opined that while the policy adjustment might generate a short-lived surge, any resulting rebound could likely falter within merely two to three days, if not shorter. He further contended that a change in market trajectory would be more precipitated by the anticipation of economic amelioration rather than the trimming of stamp duties.


As the Chinese economy, the world’s second-largest, grapples with a lethargic second-quarter performance characterized by lackluster domestic and international demand, the quantum of China’s premier blue-chip CSI300 Index has plummeted to a nadir not witnessed in nine months. The index currently languishes 11% below its pinnacle in April. Nonetheless, investors continue to yearn for more robust governmental responses, such as substantial fiscal outlays.


In a bid to seize control of the narrative, the State Council Information Office released a statement emphasizing that without a semblance of market stability, any prospect of revival and sentiment elevation remains unfounded. Furthermore, Beijing has already deployed an array of alternative measures to bolster the markets, including a smaller-than-projected reduction in lending benchmarks. 


Simultaneously, the nation’s securities regulatory authority, the China Securities Regulatory Commission (CSRC), has unveiled a comprehensive suite of proposals encompassing the facilitation of share buybacks and the cultivation of long-term investment sentiments. These strategies are designed to buttress the country’s colossal $11 trillion stock market.


From an economic vantage point, the potential reduction in stamp duty could bear ramifications for fiscal revenue. Last year’s fiscal revenue stood at an impressive 20.37 trillion yuan ($3.02 trillion), with stamp duties on securities transactions contributing 276 billion yuan or 1.35% to this total. 


In summation, while the proposed reduction in stamp duty might confer a momentary impetus to the stock market, it is abundantly clear that lingering apprehensions persist due to the paucity of comprehensive economic uplift. Evidently, substantive policy decisions are imperative for the restoration of investor confidence.


Source: Reuters

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