BEIJING (AFP) — China has decided to cut the stamp duty on stock market transactions to 0.1 percent from 0.3 percent with effect from Thursday, state media said, following deep plunges in share prices.
The move, announced Xinhua news agency, comes as stocks languish around 46 percent below an all-time high reached last October, with the key Shanghai Composite Index recently skirting the 3,000-point level.
"This is definitely good news for stocks. Of all the measures that were expected by the market, this one is the strongest they could have picked," said Yan Li, an analyst with Southwest Securities.
"After the recent drops in share prices, the stock market has already been through sufficient correction, but it needs a trigger to set off a rebound. The stamp tax cut is exactly that trigger," she said.
The decision to cut the tax was approved by the State Council, or Cabinet, Xinhua news agency reported late Wednesday.
It is the second major step to boost share prices announced by the Chinese authorities this week, signalling concern about the fate of the stock market, where millions of Chinese have invested some of their savings.
On Sunday, China issued new rules placing curbs on the sale of non-tradable shares coming out of lock-up periods. The move addressed concerns about a flood of stock coming into the market quickly and sending prices lower.
China last adjusted the stamp duty tax in May 2007, when it hiked it from 0.1 percent to 0.3 percent.
The Chinese stock market at the time was experiencing the fiercest bull run in its history, but reacted by plunging 6.5 percent -- reflecting how important changes to the tax can be for investor psychology.
On Wednesday, the Shanghai Composite Index, which covers A and B shares, closed up 130.54 points or 4.15 percent at 3,278.33 on turnover of 86.1 billion yuan (12.3 billion dollars).
Dealers said investors were buying oversold stocks as the belief grew that a slump in earlier sessions had gone too far.
The steep declines in stocks has set off calls from the public for the government to do more to shore up the market -- calls that have also been reflected in commentary by the state media.
"Policymakers should pay attention to such calls, but not respond out of merely immediate concerns," the China Daily said in an editorial on Tuesday.
"The more important job for them is to work out long-term measures that underpin a healthy development of the stock market."
The State Council called early his month for government bodies to raise the quality of listed companies and maintain an open, fair and just market order, according to a State Council statement summarising working priorities for this year.
The statement was short on detail and was meant mainly as a signal to investors that their plight was not being ignored, analysts said then.
The stamp duty has proved to be good business for the government, especially after last May's tripling.
In 2007, government coffers received a total of 220.5 billion yuan in revenue from the stamp duty, 10 times the figure from the year before, the State Administration of Taxation said previously.
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