By Xin Zhiming (China Daily)
Updated: 2008-04-24 07:12

The stamp tax on share trading will be cut steeply from today, the authorities announced Wednesday - in what is seen as an attempt to prevent the fragile stock market from a further slump.

The benchmark Shanghai Composite Index has plunged nearly 50 percent since last October despite a rebound Wednesday before the announcement.

The stamp duty will be slashed to 0.1 percent from 0.3 percent, according to a notice issued by the Ministry of Finance and the General Administration of Taxation.

Last May, the tax was raised from 0.1 percent to 0.3 percent to dampen surging investor sentiment, but the Shanghai index rose to 6,124 points in October - about six-fold the valuation two years earlier.

But the ensuing six-month correction pushed the index below the 3000 level this week, prompting the move by the government to prevent further declines, analysts said.

"The new move is not surprising," said Li Zhikun, board secretary and head of international investment of China Jianyin Investment Securities. "It is a sign of the government's efforts to shore up the market."

On Sunday, the government issued a regulation to limit sales of previously non-tradable shares after the lock-in period - which could be worth trillions of yuan - to reduce capital-draining pressure on the market.

Li and other analysts agreed that the market will recover from the prolonged correction after the latest move, although other key reforms are needed to ensure the sound, long-term development of the market.

The stock market is still faced with key challenges, such as the IPO system, which favors big institutions instead of individual investors, and unrestrained re-financing by listed companies, said Yang Tao, economist with the Institute of Finance and Banking at the Chinese Academy of Social Sciences.

The initial 160 billion yuan ($22.9 billion) re-financing plan by Ping An Insurance of China earlier this year, for example, triggered a selling spree amid investor fears the market may become a cash cow for big companies.

Li from China Jianyin Investment said that the trading tax reduction may not necessarily good because the market may begin to rely on government intervention whenever it slumps. "It sets a bad precedent," he said.

Rules to ensure order

To further promote the stable development of the capital market, the executive meeting of the State Council, presided over by Premier Wen Jiabao, last night approved draft regulations on the supervision and risk management at securities firms.

The meeting also decided to boost system improvement and market supervision to ensure an open, equal and just market order.