China Seen Halving Stamp Duty on Stock Trading to Boost Markets

Chinese authorities are anxious to revive the country’s struggling stock markets and looking at slashing the stamp duty on domestic stock trading, sources say.

Chinese regulators and Finance ministry officials submitted a draft proposal to the cabinet earlier this month, according to two people, who said a decision could be made and announced as soon as Friday.

The proposal, guided by the State Council, to reduce the 0.1% stamp duty on securities trading suggested a cut of either 20% or 50%, which would be the first cut since 2008, they said.

The quantum of the cut, which has not been reported before, is likely to be set at 50%, they said. All sources declined to be named as they were not authorised to speak to the media.

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Shanghai Composite down 11% since April

The State Council Information Office, which handles media queries on behalf of the government, did not immediately respond to a faxed request for comment. The Ministry of Finance and the China Securities Regulatory Commission (CSRC) also did not respond promptly either.

The proposed cut comes after China’s leaders vowed in late July to reinvigorate the world’s second-largest stock market, which has been reeling as the country’s economic recovery flags and woes in the property market deepen.

The country’s bluechip CSI300 Index has dropped to nine-month lows, and is down 11% from an April peak as hopes of a post-Covid economic recovery and corporate earnings boom fizzled out. By comparison, MSCI’s global stock index is up 11% so far this year.

News of the stamp-duty cut is no surprise, given the CSI300 index has slumped by 9% in the past 13 sessions as foreigners pulled out 78 billion yuan ($10.73 billion) – their longest selling streak since 2015.

The world’s second-largest economy grew at a sluggish pace in the second quarter amid weak demand both at home and abroad, prompting analysts to downgrade their growth forecasts for the year in the absence of major policy support measures.

Investors unimpressed by small lending rates cuts

Against the backdrop of growing headwinds, Beijing has taken a series of measures to support markets, including a smaller-than-expected cut in a key lending benchmark and other steps earlier in the week.

The modest stimulus has so far failed to satisfy investors and revive a slowing economy, as they demand stronger policy packages including massive government spending.

In the latest such move, China’s central bank has asked some domestic banks to scale back their outward investments through the Bond Connect scheme, report said earlier on Friday, citing sources with direct knowledge of the matter.

China’s securities regulator on August 18 unveiled a package of proposals including supporting share buybacks and encouraging long-term investment to support the country’s $11-trillion stock market.

The CSRC also said stablising the stock market was a priority. “Without a relatively stable market environment, there’s no basis for reviving the market and lifting sentiment.”

Any reduction or exemption of stamp duties including the one on stock trading can be decided by the State Council, based on the needs of the country’s economic and social development, according to China’s Stamp Duty Law which came into effect in July 2022.

“A cut in stamp duty (on stock trading) can help decrease investment cost and boost trading activity,” analysts at broker Topsperity Securities said in a note.

“Compared with previous policy measures, a cut in stamp duty may have a stronger effect in repairing investor confidence. In the longer term, the impact might be limited.”

China’s fiscal revenue totalled 20.37 trillion yuan ($3.02 trillion) last year, with 276 billion yuan or 1.35% contributed by stamp duty on securities transactions, official data showed.