China has implemented a series of actions to reestablish investor trust in its second-largest global economy. One significant move involves the reduction of a stock trading tax, marking the first such decrease since 2008. The country has faced a significant outflow of foreign investment from its stock market due to growing concerns about its economic prospects. The declaration of these measures led to an initial boost in Chinese stock prices on Monday.
However, much of these gains were erased later in the day as apprehensions over China’s real estate crisis and sluggish growth continued to weigh on investors’ minds and problem for investor trust.
The reduction in the stock trading tax, which was previously set at 0.1%, has been halved with immediate effect, as announced jointly by the Ministry of Finance and the State Administration of Taxation on Sunday. The primary aim of this action is to rejuvenate the capital market and instill confidence among investors, as stated by the regulatory bodies.
Notably, this marks the first such tax reduction since April 24, 2008, when the Chinese government lowered the stock trading levy from 0.3% to 0.1% in response to the turmoil triggered by the global financial crisis. This move resulted in a rapid 9.3% surge in the Shanghai Composite Index, which at the time was the second-largest daily gain ever recorded.
Additionally, the China Securities Regulatory Commission (CSRC), the leading securities regulator in the country, introduced a series of measures to bolster investor confidence in the struggling stock market. These measures encompass reducing the collateral stock traders must maintain with their brokers, slowing down the pace of initial public offerings, and imposing constraints on the volume and frequency of share sales on the stock market by major shareholders of listed companies.
The Chinese stock markets have encountered significant declines in recent weeks due to concerns about the ongoing economic slowdown and the real estate crisis. Over the course of three weeks starting from August 7, offshore investors have sold a net sum of 78 billion yuan (approximately $11 billion) worth of Chinese stocks through Hong Kong’s Stock Connect trading platform.
The impact of the stock trading tax reduction goes beyond mere cost savings for traders. It communicates to the market that the top leadership places substantial importance on revitalizing the investment sentiment, according to Chris Liu, a senior portfolio manager at Invesco, specializing in mainland Chinese stocks.
