China cut stamp duty on the sale of stocks by half on August 28, a move that is expected to trigger a rally in the capital market and immediately boost market confidence and China's economy amid a global economic downturn, industry observers said. As Chinese authorities mull measures to further raise economic growth, the move is the most “heavyweight one,” they said, predicting a rally in China's equity market and an inbound rush of overseas capital. The news was announced by the Ministry of Finance (MOF) in a short statement, which said the measure was launched “in order to invigorate the capital market and boost investor confidence.” The stamp duty on stock sales is now 0.1%. The cut is unusual and the first since 2008. In April 2008, Chinese stock regulators slashed the levy from 0.3% to 0.1% when the market was hitting a low, spurring a bull run. The bull run extended into 2009, as the Shanghai Composite Index gained more than 80% during that year, making it one of the best-performing major stock markets globally. Chinese investors were thrilled about the news, hoping for a “repeat of the miracle” in 2008.
Looking at the impact of adjustments to stamp duty in the past 25 years, they have almost all generated significant positive momentum for the market, Yang Delong, Chief Economist at Shenzhen-based First Seafront Fund Management Co, told the Global Times. “The news is a great boost to China's economy, and overseas capital is expected to rush into Chinese equities on August 28,” a veteran industry observer surnamed Li told the Global Times. The China Securities Regulatory Commission (CSRC) also revised the rules for margin financing and securities lending to boost investor confidence. The regulator aims to reduce the minimum margin ratio for investors to buy securities from 100% to 80% taking effect on September 8.
Pan Helin, Joint Director of the Research Center for Digital Economics and Financial Innovation affiliated with Zhejiang University's International Business School, told the Global Times that the move could lead to a “conspicuous recovery” of the market in the short term, though he said combined measures are still needed to ensure the long-term health of the stock market. The move could return CNY130 billion to investors in waived fees, based on the volume of stamp duty collected in 2022, Pan said, noting that this is a concrete benefit that the regulator gives to investors. On August 18, the CSRC announced support policies, including cutting transaction fees, developing equity funds and considering the creation of a “green channel” for technology companies that aim for breakthroughs in core technologies.
