BEIJING - Shares
listed in China jumped almost 10% on Thursday,
giving a benchmark index its biggest gain in more
than six years, after the Chinese government cut
the stamp tax on stock trading to boost an
equities market that had fallen 50% from its
record high on October 16 last year.
The
tax cut to 0.1%, announced after the close of
trading on Wednesday and effective the next
session, reversed an increase from that level to
0.3% imposed on May 30 last year when the
government was seeking, ineffectually, to cool a
market that almost doubled last year.
The
Shanghai Composite Index gained 9.3%, its
strongest showing since October 2001, to close at
3,583.03. The benchmark had surged 4.15% higher on
Wednesday before the
tax cut announcement.
Earlier in the week it had sunk to less than half
its October record high.
The CSI 300 Index, a benchmark
for yuan-denominated shares traded in both
Shanghai and Shenzhen, climbed 9.3% on
Thursday, after a decline of almost 40% this
year made it after Vietnam the world's
second-worst performing benchmark.
The tax
cut, widely expected, was only the latest in a
number of steps taken by the government to boost
investor sentiment following months of heavy
sell-offs. The stamp duty will still apply to both
sides of a trade.
China at the end of last
year tripled to US$30 billion the amount overseas
institutions are allowed to invest in
yuan-denominated stocks and bonds, then in
February permitted the creation of new mutual
funds, ending a five-month freeze.
Most
recently, the securities regulator last week
ordered shareholders looking to sell more than 1%
of a stock to do so in single block trades, to
keep the transactions off the open market. The
action was targeted particularly at shareholders
holding large amount of stocks under lock-up
periods that are coming up for expiry. Such
lock-up periods are often imposed on strategic
investors holding shares in companies when they
are listed.
Analysts said that measure was
aimed at easing concerns that large amounts of
such shares would flood the market and sink prices
further. Any further declines would further erode
the holdings of the country's retail investors,
who have turned to the stock market in large
numbers to earn better returns than the negative
real interest rates offered by banks. Losses by
346 mutual funds, which many people use as
investment vehicles, reached 647.5 billion yuan
(US$93 billion) in the first quarter, eight times
the amount of the three months ended December,
according to TX Investment Consulting.
"If
such shares were all traded on the [open-market]
bid trading system, trading would not be efficient
as the volume would be restricted by the buying
interest on the secondary market," a China
Securities Regulatory Commission spokesman said in
a statement. "The trading would also exert huge
pressure on share prices and twist the pricing
mechanism.
"The move will help ease
pressure on the secondary market ... and to
stabilize investors expectations on the reduction
of the holdings of such shares."
Li Feng,
an analyst at Galaxy Securities, said a sustained
market rebound was expected this quarter on low
valuations, easier liquidity, and first-quarter
earning results that should show a minimum of 30%
profit growth.
Wednesday's tax cut showed
the government's desire to see a stable market and
would help to restore investor confidence, said
Qiu Yanying, an analyst at TX Investment
Consulting Co. "Confidence in a recovery is more
important than fund injections. After earlier
panic and irrational selling amid a breakdown in
confidence, it was hard for the market to return
to normal."
Li of Galaxy Securities said:
"It was no longer a question of investment, but
confidence.
Any further delays in the tax
cut could have triggered heavy losses and if made
later could have been less effective, Qiu said,
pointing to the fall in the Shanghai Composite
Index to below 3,000 points in Tuesday trade
before closing at 3,147.79.
"Three
thousand points is an important threshold for both
regulator and investors, and a sustained decline
below the mark could be disastrous to investor
confidence and trigger further selling."
Analysts and academics, including Cao
Fengqi, head of Peking University's finance and
securities research center, said a prolonged fall
in share prices would hurt consumer spending, an
increasingly important driver behind the country's
economy as exports growth slows on signs of a US
recession.
"Further market declines could
have a huge negative impact on the economy," Cao
said.
Growth in China's economy slowed to
10.6% in the first quarter from 11.2% in the
previous three months.
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Thursday, after a decline of almost 40% this
year made it after Vietnam the world's
second-worst performing benchmark. 
