China to Cut Stocks’ Stamp Duty for First Time Since 2008 as Market Hits 9-Month Low
Authorities in China have proposed slashing stamp duty on stock trading from 20% to 50% in what would be the first reduction of this extent since 2008. The proposal comes after the Chinese blue-chip stock market index crashed to its lowest level since November 2022.
Authorities Propose Stamp Duty Cuts of Up To 50%
The Chinese government is set to reduce the stamp duty on stocks by up to 50% as the country’s stock market continues to decline amid the worsening debt crisis in the real estate market.
China’s regulators, including the Ministry of Finance, put forward a draft proposal earlier this month to cut the stamp duty on stock trading. The reduction of the current 0.1% stamp duty suggested a cut of 20% or 50%, which, if materialized, would mark the first such move since 2008.
According to Reuters, it is more likely that the extent of the cut will be set at 50%. People familiar with the matter said the decision could be announced on Friday.
The proposal comes after CSI300, China’s blue-chip index tracking the top 300 stocks on Shenzen and Shanghai exchanges, tumbled to a 9-month low. The index is down around 11% from its April highs, and more than 4.5% since the start of the year.
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Stamp Duty Cuts Are Just a Short-Term Solution, Fund Manager Says
While the proposed stamp duty cuts could provide relief to embattled Chinese stocks in the short run, analysts do not see it as a long-term solution.
“Such a policy will likely give a short-term boost to the market, but won’t have much effect over the long run. The rebound could last for just two to three days, or even shorter.”– said Xie Chen, fund manager at Shanghai Jianwen Investment Management.
A shift in the market’s long-term trajectory would be prompted by expectations of positive economic developments, rather than stamp duty reductions, Chen added.
China’s stock market woes were triggered by a slowdown in the nation’s economic growth and a growing debt crisis in the property market. Last week, China’s largest real estate developer Evergrande filed for bankruptcy protection after seeing its debts accumulate to more than $300 billion.
In the meantime, the world’s second-largest economy has also been grappling with growing worries around potential repercussions stemming from payment defaults on shadow banking-associated trust products. The concerns primarily center on the significant interconnection between China’s massive $3 trillion shadow banking sector and its exposure to both property developers and the broader economic landscape.
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