China has implemented a series of measures aimed at attracting investors to its stock markets, which includes reducing the stamp duty on stock trades and implementing restrictions on initial public offerings (IPOs) to boost investor confidence. The Chinese ministry of finance announced that the stamp duty on stock trades will be reduced from 0.1% to 0.05% starting August 28, according to a Bloomberg report.
The objective behind China’s recent moves is to “invigorate capital markets and boost investor confidence” amid ongoing market conditions.
The China Securities Regulatory Commission (CSRC) cited recent market conditions as the rationale for slowing down the pace of IPOs. The new rules set by the CSRC include placing restrictions on the frequency and size of refinancing for companies that continuously report financial losses and whose stock prices have fallen below IPO levels or net asset levels. However, the rule exempts property developers.
These measures come as Chinese authorities aim to address concerns about the economy stemming from issues like a declining property market, trust defaults, and weak consumer spending.
Foreign investors have been net sellers of mainland China stocks for a record 13 consecutive sessions, according to Bloomberg data, highlighting the need to bolster investor confidence.
In addition to reducing the stamp duty, Chinese regulators have taken other steps to support the stock market. These measures include reducing handling fees on stock transactions, allowing mutual fund managers to increase purchases of their own equity funds, and encouraging companies to engage in share buybacks.
The recent reduction in stamp duty is not the first of its kind in China. The stamp duty was last cut in April 2008, with the intention of supporting the market. In May 2007, China had increased the stamp duty rate to 0.3% in an effort to cool down a rally that was attracting a high number of new investors.
Another notable change is the reduction of the margin ratio for margin trading, which will be lowered from 100% to 80% effective from September 8.
For companies whose stock prices have fallen below IPO levels or net asset levels, or those that haven’t paid sufficient cash dividends, the controlling shareholders and de facto controlling holders will not be allowed to reduce their holdings in the secondary market, according to the new rules.
These measures reflect China’s commitment to fostering a stable and vibrant stock market environment while addressing concerns raised by recent economic challenges.