China slashes tax on share trading
China slashed the tax on share trading last night in an effort to encourage investors to return to a stock market that has fallen by nearly half over the past six months. The government will reduce the tax on each share trade from 0.3 per cent to 0.1 per cent from April 4th.
The announcement effectively reversed a decision last May when the government tripled the tax. This was in an effort to limit speculation as retail investment was expanding rapidly and many observers believed the market was developing into a bubble.
This is a very useful measure and will definitely boost confidence, which is exactly what the market needs at this moment. However, this will only be effective in the short-term.
Although there have been few signs of the sort of large public protests by angry investors that accompanied previous market crashes, the government has come under increasing pressure to take steps to boost the market.
Moreover, a sustained revival will require investors to overcome fears about rising inflation, slowing earnings growth from listed companies and a big potential supply of new shares coming on to the market.