China Cuts Stock Transaction Fees

Regulators move to counter 14% slide in nation’s equity market.

Chinese regulators, seeking to arrest a 14 percent slide in the nation’s stock market since this year’s high on March 2, reduced transaction fees on equities trading by 20 percent.

The reduction will take effect Sept. 1 and save investors 600 million yuan ($94 million) in transaction-related fees in the final four months of the year, the China Securities Regulatory Commission said on its website today. Separately, the official Xinhua News Agency said that China is also considering a cut in stamp duty on share trading.

The reduction follows a July 31 announcement by the Communist Party’s Politburo that pledged to continue adjusting policies to ensure stable economic growth. The Securities Times said in a front-page commentary the same day that the government should introduce measures to stabilize the stock market and boost investor confidence.

“The government wants to be seen doing something politically,” Andy Xie, an independent economist who was formerly Morgan Stanley’s chief Asia economist, said today in a telephone interview. “There’s a confidence crisis in the stock market and there’s a perception that the stock market is a trap and doesn’t reward investors.”

China’s benchmark Shanghai Composite Index fell 5.5 percent last month, the worst-performing market in Asia, on concern an economic slowdown is deepening and as Europe’s debt crisis hampers exports to China’s biggest trading partner. The nation’s economy grew 7.6 percent in the second quarter, the slowest pace since 2009. Profits for industrial companies fell 1.7 percent in June, declining for a third straight month.

The lower fees are the latest measure to boost investor sentiment. The CSRC in recent months urged listed companies to pay more cash dividends and changed how initial public offerings are priced. Chinese publicly traded companies, especially those whose stock prices are below their book values, have obligations to buy back shares, the China Securities Journal said today, citing an unidentified CSRC official.

“It’s one piece of good news out of all the bad news that has come out,” said Hao Hong, Hong Kong-based managing director for research at Bocom International Holdings Co. “It won’t change anything for investors unless there is a change in economic growth and earnings growth.”

The People’s Bank of China has cut interest rates twice since early June and lowered lenders’ reserve requirement ratio three times starting in November as part of the government’s efforts to boost credit and support economic expansion.


Stamp Duty

Over the past five years, the Shanghai index has been the worst performer among the world’s 10 biggest stock markets with a 52 percent slide, according to data compiled by Bloomberg. The index dropped 0.6 percent today.

The government last cut the stamp duty on Sept. 19, 2008. It’s a levy on share transactions imposed by the finance ministry that’s considered the costliest of equity fees.

“When we cut the stamp duty, it’s always followed by a technical rebound,” Hong said. In the second week of 2008, they cut the stamp duty and also the interest rate. We had a small rebound, but we all know from September to November stocks went down substantially further.’’

Trading charges will also be cut as much as 26 percent for futures exchanges in Shanghai, Zhengzhou and Dalian, the securities regulator said today. The China Financial Futures Exchange will reduce transaction fees by 28.57 percent, it said.

As a result, futures market costs may drop by 1 billion yuan, the CSRC said. The Shanghai and Shenzhen bourses earlier lowered fees levied for trading A shares by 25 percent on June 1. The regulator also reduced supervision charges on the nation’s stock and futures exchanges this year.

“The cut in trading fees itself won’t have a big impact on the market,” said Zhang Ling, general manager at Shanghai River Fund Management Co. “But the prospect that the government will follow up with more market-boosting measures such as the suspension of IPO sales going forward may have investors reacting more positively.”


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