Chinese Investors Wary Following Market Cooling Move

by Mary Swire, for LawAndTax-News.com, Hong Kong

05 June 2007

It appears that measures put in place last week by the Chinese authorities to cool the stock market may have worked a little too well, as it emerged that stocks fell more than 8% on Monday, over concerns that further action may be taken by Beijing.

Last week, the Chinese government announced a tripling of the stamp duty tax charged on share dealings, in a bid to take some of the speculative excess out of the country's stock markets.

The stamp tax was increased to 0.3% from 0.1% after a surprise announcement by the Ministry of Finance shortly after midnight US time on Tuesday. However, the government stopped short of restoring the stamp tax to its 1997 level of 0.5%, imposed the last time it attempted to cool the market, fearing a loss of confidence among traders and investors.

According to the official Xinhua news agency, a ministry official said that the share tax hike was "intended to help promote the healthy development of the securities markets".

Reports have revealed that in attempt to calm yesterday's panic-selling, which saw around $340 billion wiped off market value, editorials in official newspapers have been seeking to reassure investors that the measures were merely aimed at dampening rampant speculation on the stock market.

Investors are reportedly concerned that the government may consider the imposition of capital gains tax on share profits, although this latter measure has been touted only as a last resort.

Analysts, meanwhile, appear unconcerned regarding what is being viewed by many as a temporary slide on an otherwise still upwardly-mobile market.

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