China to Cut Stocks’ Stamp Duty for First Time Since 2008 as Market Hits 9-Month Low

China to Cut Stocks’ Stamp Duty for First Time Since 2008 as Market Hits 9-Month Low

If materialized, the proposed stamp duty cuts of 50% would mark the first such move in 15 years.
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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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