Posted by: Frederik Balfour on September 19, 2008
How do you say “dead cat bounce” in Chinese? The Shanghai stock market surged 9.46% on Friday, but it’s still down more than 60% this year. The jump came on the back of huge gains overnight on Wall Street that gave a lift to bourses across the region. Hong Kong was also up 8%.
But China’s gains also were prompted by the announcement on Thursday that the stamp tax on purchases of shares would be abolished beginning Sept. 19, while the 0.1% duty on the sale of shares remains in place. And while the actual savings to Chinese traders is pretty small in the grand scheme of things, the move is generally interpreted as a signal that the government would like to provide more support to the sagging market. But I wouldn’t count on it. The same thing happened in late April when the Ministry of Finance and State Administration of Taxation cut the tax from 0.3% to 0.1%, causing shares to soar 9.3% on the news. But the market quickly resumed its journey south, and closed below the 2000 point level on Tuesday of this week, its lowest since November 2006.
But the Chinese are moving ahead with other market support measures too. Listed companies are being encouraged to buy back their own shares while China’s sovereign fund, the $200 billion dollar CIC, is expected to start buying shares in listed Chinese banks. There is also talk that China may set up a market stabilization fund to keep A-shares [which can only be traded by Chinese and qualified foreign institutional investors] on a more even keel.
A year ago, China might have taken a lot more flak from international commentators for contemplating such interventionist moves, but compared with the massive bailouts in the U.S. we’ve seen this week, China’s approach looks almost laissez faire by comparison.