Shanghai index soars 9.3 pct on tax cut
Thursday April 24, 7:01 am ET
By Elaine Kurtenbach, AP Business Writer
China's Shanghai index soars 9.3 percent after government cuts tax on stock transactions
SHANGHAI, China (AP) -- China's most-watched stock index surged 9.3 percent Thursday -- its biggest percentage gain in more than six years -- after the government cut a tax on stock transactions in an effort to boost slumping markets.
The rebound came as many global markets are recovering modestly from turmoil linked to the U.S. credit crisis and slower global growth.
The benchmark Shanghai Composite Index surged as much as 9.6 percent in early trading, then fell back some before closing up 304.69 points at 3,583.02. The Shenzhen Composite Index of China's smaller bourse shot up 8.7 percent.
Thursday's rally was the biggest one-day percentage gain since a 9.9 percent surge on Oct. 23, 2001.
"I hope it will keep rising for another ten days. That sounds like a daydream, but it would be perfect," said office worker Zhou Yu, who joined scores of other jubilant investors watching the price boards in a downtown securities company lobby.
The jump came after the government announced late Wednesday that it was cutting a stamp tax on share transactions to 0.1 percent from 0.3 percent. That reversed a tax increase imposed last year, when regulators were trying to cool surging stock prices.
The government keeps its markets isolated from global money flows and most shares are off-limits to foreign buyers. But investors are watching them closely for signs of a possible recovery, and some markets react to swings in Chinese prices.
The latest tax measure took effect Thursday.
Chinese stock prices have fallen sharply since October, ending a boom that began in mid-2006. The main index has dropped by nearly half, hitting levels last seen in March 2007. As of Thursday's close it was still down 31 percent for the year.
"The lowering of stamp duty ... is among the most aggressive steps the government could have taken to improve sentiment," Jing Ulrich, chairwoman of China equities for JPMorgan Chase & Co., wrote in a report to clients.
China's economy has grown by more than 10 percent annually for five straight years and the first-quarter expansion was 10.6 percent over the same period of 2007.
In China's state-dominated economy, stock prices are especially sensitive to policy changes.
Analysts warned, though, that short-term measures like the stamp tax cut will have only a transient effect, and that longer-term worries over interest rates and other economic policies are bound to limit the market's recovery.
Alarmed by an 11 percent slide in the Shanghai index last week, market regulators announced new restrictions late Sunday on sales of large blocks of shares.
The measures were intended to reassure investors who worry that the market will be diluted when $430 billion in previously nontraded shares become available this year, but it seemed to do little.
On Tuesday, for the first time in more than a year, the Shanghai benchmark dropped briefly below 3,000.
The stamp tax reduction seemed to have done the trick, for now.
The Shanghai index was helped Thursday by a 9.9 percent advance in PetroChina's stock, to 18.15 yuan. Its shares account for about one-fifth of the benchmark's total value.
Among other big gainers, Aluminum Corp. of China was up 10 percent at 22.57 yuan, Industrial and Commercial Bank of China gained 7.9 percent to 6.81 yuan and Baoshan Iron & Steel Co. rose 10 percent to 12.06 yuan.
(This version CORRECTS SUBS lead to correct biggest gain in six years.)
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