CHINA announced yesterday to cut its stamp tax on stock trading to 0.1 percent from 0.3 percent to bolster the country’s markets, which have been in free fall since mid-January.

The long-awaited cut takes effect today. This was the ninth time China adjusted the stamp duty.

Investors had been pushing for such a move, with the country’s benchmark index off about 50 percent from its peak of 6,092.06 points reached Oct. 16 last year.

The cut returns the stamp tax to its level of last May, before the government tripled the tax to three yuan (US$0.42) per 1,000 yuan of share value May 30 last year to cool the market, which was surging in a two-year bull run that ultimately boosted the key index nearly six-fold.

But whether the duty cut will save the mainland stock markets from a further slide is not yet clear, as some analysts said the policy would have a “limited impact on boosting confidence since the overall market still faces other major problems.”

Lin Songli, an analyst with Guosen Securities in Beijing, said the move had been 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.

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“The next step for the government will be to slow down the approval of IPOs and the issuance of additional shares,” he added.

He Qiang, a professor with the Central University of Finance and Economics, who has been advocating lowering or even scrapping the tax, said he felt relieved.

“Finally my efforts are repaid, and it shows that the government attaches great importance to the interests of small investors,” He said.

“It’s definitely a favorable factor, but more measures are needed in order to bolster the sagging stock market.”

His view was echoed by Wu Xiaoqiu of the Finance and Securities Research Institute of Renmin University.

“The government should lay down regulations about refinancing of listed companies, and together with the stamp duty cut, it will push up the market for real,” Wu said.

The benchmark Shanghai Composite Index rose 4.15 percent to close at 3,278.33 yesterday, 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.

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 country cut the stamp tax to 0.3 percent in 1991 from 0.6 percent for the first time.

Last year, stamp duties paid by investors on Chinese mainland stock transactions totaled 200.5 billion yuan, a jump of more than 10 times from the previous year.

(SD News)