China to halve stamp duty on securities trading to boost capital market

China will cut its stamp duty on securities trading by half starting on August 28 in an attempt to activate the capital market and boost investor confidence, China’s Finance Ministry and State Taxation Administration said on Sunday.

The cut is the country’s first such reduction since 2008 when the Chinese authorities reduced the rate of the stamp duty from 3 per thousand to 1 per thousand.

“Cutting half of stamp duty on securities trading is one of the most important measures to boost investors’ confidence,” said Zhao Xijun, a professor at the School of Finance at Renmin University of China.

Zhao noted that historically, the adjustments to the stamp duty on securities transactions had received positive feedback from the capital market, “especially in 2008, the cut of the stamp duty boosted a considerable increase in China’s stock market.”

China began levying stamp duty on securities trading in 1990. It has been reduced four times since 2000, except for the latest cut. On the four occasions, the volume of the Shanghai Composite Index rose by 71 percent, 98 percent, 114 percent and 139 percent, respectively.

“The main reason is that cutting the stamp duty can reduce investor costs, which is conducive to enhancing the market turnover scale,” said Gao Ming, an analyst from China Galaxy Securities Co., Ltd.

China’s stamp duty is currently levied unilaterally on the seller at the rate of 1 per thousand of the transaction amount of the stock transaction, the lowest in history and the lowest compared with other countries that levy stamp duty.

“The latest adjustment of stamp duty has a substantial benefit to the market, which is an initiative that can have an immediate effect and has a distinctive positive orientation on the capital market,” said Zhao.

The cut was also the Chinese authorities’ latest move to shore up the economy after a Political Bureau of the Communist Party of China Central Committee meeting in late July on the arrangements for economic work in the second half of the year urged efforts to invigorate the country’s capital market.

Along with the move, the China Securities Regulatory Commission (CSRC) is also rolling out measures to recover market confidence in investing in listed companies.

The CSRC said on Sunday that China will slow the pace of initial public offerings and further regulate major shareholders’ share reductions. Meanwhile, stock exchanges in China have lowered their margin financing requirements, according to the CSRC’s announcement.

(With input from agencies)