After Chinese Premier Wen Jiaobao pledged, in his policy address to the opening of the National People’s Congress (NPC) session, to ensure the healthy and steady development of the country’s securities market, market analysts are increasingly optimistic about the market outlook this year despite the current downturn pressures.

Analysts believe an imminent measure the government could take is to the cut stamp duty on stock transactions.

Some Chinese economists and media commentaries have already been urging the Ministry of Finance to consider a cut to the stamp duty to bolster investors’ confidence. This nine months after the tax was tripled to 0.3% from 0.1% in an attempt to cool speculation that had sent shares to record highs since the beginning of 2007.

The Ministry of Finance’s announcement of the higher stamp duty rate had an immediate effect and the Shanghai Composite Index dropped about 13% in the following week.

The 0.3% stamp duty is applicable to both buyers and sellers of stocks.

Looking to boost investor sentiment, He Qiang, a member of the National Committee of the Chinese People’s Political Consultative Conference, said he will submit a proposal calling on the government to change its bi-directional stamp tax to one way.

He Qiang, a professor at the Central University of Finance and Economics, said that action on his proposal, in addition to boosting investor sentiment and stimulating stock turnover, would be good for the healthy development of China’s stock markets.

He said, ‘Cutting the stamp tax from bilateral [on purchases and sales] to unilateral not only stimulates stock turnover, but also encourages retail investors to play the stocks as a long-term investment rather than for short speculative gains. If the stamp duty is applicable only to sellers of stock, buyers will be taught to see beyond just making a short-term profit.’

Government income from stamp taxes reached RMB200.5 billion in 2007, a 10-fold increase from 2006, and surpassing the dividends of RMB180 billion distributed by listed companies.

Australia is the only other country that levies such a tax bilaterally. Our illustration is of a small investor immediately after the introduction of the bilateral stamp tax.
Source: Asia Times Online