Chinese authorities are reportedly mulling over a significant reduction in the stamp duty on stock trading, aiming to breathe new life into the country’s struggling stock market. Three anonymous sources with insider information revealed that regulators, including the Ministry of Finance under the guidance of the State Council, have submitted a draft proposal to the cabinet earlier this month. A decision on this proposal could be made public as soon as Friday.
Current Stamp Duty
The current stamp duty on securities trading, which stands at 0.1%, is being considered for a reduction of either 20% or 50%, marking the first such cut since 2008. While both options were suggested, the insiders hint that the more substantial 50% reduction is likely to be the preferred choice.
The sources declined to reveal their identities due to their lack of authorization to speak to the media. Requests for comments from the State Council Information Office, the Ministry of Finance, and the China Securities Regulatory Commission (CSRC) went unanswered.
China reportedly considering stamp duty cut to boost stock market
A Move Aimed at Revival
This move follows China’s recent commitment to revive its second-largest stock market, which has been grappling with a dwindling economic recovery and a property market debt crisis. The CSI300 Index, representing blue-chip stocks, has plummeted to its lowest point in nine months, down 11% from its peak in April. In contrast, MSCI’s global stock index has surged by 11% this year.
While this stamp duty reduction could offer a short-term boost to the market, experts like Xie Chen, a fund manager at Shanghai Jianwen Investment Management Co, believe it won’t address the market’s long-term trends. Xie notes that a sustained market reversal would depend on expectations of economic improvement rather than stamp duty cuts.
China’s Second Quarter Growth
China’s economy faced sluggish growth in the second quarter, leading to lowered growth forecasts for the year. In response, Beijing has implemented various market-supporting measures, including a moderate cut in a key lending benchmark. However, investors are seeking more robust policy responses, such as substantial government spending, to bolster market confidence.
China’s securities regulator announced proposals to encourage long-term investment and support share buybacks in a bid to stabilize the $11 trillion stock market. The regulator emphasized that a stable market environment is crucial for market recovery and investor sentiment.
Stamp duty reductions fall under the jurisdiction of the State Council and are decided based on the country’s economic and social development needs. Last year, China’s fiscal revenue totaled $3.02 trillion, with stamp duty on securities transactions contributing $44 billion or 1.35%.
