China Cuts Stamp Duty on Stock Trading

According to the Ministry of Finance and the State Taxation Administration, China lowered the 0.1 per cent stamp duty on stock transactions by half with the intention of revitalizing the capital market and boosting investor confidence. In the first seven months of 2023, China collected RMB 128 billion in stamp tax revenue.

In April 2008, Chinese securities regulators already reduced the duty from 0.3 per cent to 0.1 per cent. Following that, in September of the same year, the stamp duty was exclusively imposed on the seller, leading to periods of significant market upswings.

Data indicate that the Chinese stock market currently consists of more than 220 million individual investors, representing 99.7 per cent of the total investor base. Among these, a significant portion (87.9 per cent) comprises small and micro investors who hold shares valued at less than RMB 100,000 (approximately USD 13,917).

Concurrently with the reduction in stamp duty, China Securities Regulatory Commission (CSRC) announced a set of supportive measures which include reducing transaction fees, fostering equity funds, and contemplating the establishment of a streamlined process ("green channel") for technology companies that strive for innovations in core technologies. It has also unveiled plans to reduce the pace of initial public offerings (IPOs) and further regulate major shareholders' share reductions.

The CSRC specified that the extent of major shareholders' share reduction will be controlled, adding that the controlling shareholder or effective controller of a listed company will not be able to lower its holdings through the secondary market under several scenarios, including when the company sees the share price fall below the initial offering price, when it has not paid cash dividends in the past three years, and when cumulative cash dividends are less than 30 per cent of the company's average annual net income in the past three years.

In addition, effective after shares close on Sept. 8, 2023, the minimum margin ratio of financing for purchasing securities will be lowered from 100 to 80 per cent in China, which will effectively improve the utilization of available funds.

Analysts believe the moves will help support credit demand and stimulate consumption and investment growth.