China cuts tax on share purchases
China’s Finance Ministry has eliminated a tax on share purchases, effective Friday, moving to shore up ailing markets amid further by global financial turmoil.
State-run China Central Television said late Thursday that a 0.1% stamp tax on buying shares would be abolished, although an equivalent tax on share sales would remain.
Meanwhile, a government investment arm plans to buy shares in three major Chinese banks in order to boost their prices, which have plunged following last weekend’s announcement that investment bank Lehman Brothers has filed for bankruptcy, the official Xinhua News Agency reported.
It said Central Huijin Investment Corp., which holds majority shares in many state-run companies and financial institutions, began buying shares in the Industrial & Commercial Bank of China, Bank of China and the China Construction Bank on Thursday.
The report gave no other details.
The moves follow a volatile day that saw the country’s benchmark Shanghai Composite Index plunge 7% before recovering some losses to close 1.7% lower, at 1,895.84.
Already weakening bank shares fell further early Thursday after lenders disclosed holdings in Lehman Brothers bonds totaling about $300 million. But they rebounded later in the day on bargain hunting.
Bank of China gained 2.7% to 3.05 yuan and ICBC rose 0.6% to 3.44 yuan, while China Construction Bank fell 0.5% to 3.81 yuan.
"I think the market is not stable at all," An Yun, a strategist at Shenyin Wanguo Securities in Shanghai, said of the rollercoaster-like session.
Analysts said rumors of possible government moves to support the market also helped to spur buying late in the session.
Regulators have used adjustments in the stamp tax in the past to help spur or cool demand for shares.
The Shanghai benchmark has fallen nearly 70% since hitting a peak of 6,124.04 in mid-October of last year $1500 payday loan. On April 24, the last time the stamp tax was cut, the Shanghai Composite Index soared 9.3% - its biggest one-day percentage gain ever.
The previous tax cut, to 0.1% from 0.3%, reversed a tax increase imposed in May 2007, when regulators were trying to restrain surging share prices.
But as in the past, tinkering with the stamp tax may have only a transient impact on share prices, given prevailing worries over the economic outlook, the global financial crisis and long-term structural problems in the mainland Chinese markets.
"This move signals the government’s more proactive approach towards restoring market sentiment," Jing Ulrich, chairwoman for China equities at JPMorgan Securities, said in a comment issued late Thursday.
Other moves might include setting up a stabilization fund and further reforms on sales of newly tradable shares, she said.
Filed under: technology by Fred