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Stock Market Rallies on Stamp Tax Reduction

A long-awaited rally took place in China's stock markets thanks to the nation's stamp tax cut, but analysts said this recovery may be short-lived if it is not followed up with more concrete policies to upgrade the market structure and fundamentals.

China's Ministry of Finance has announced that duties levied on A-share and B-share transactions would be halved to 0.1 percent starting in January, 2005.

This was the first cut in the stock trading duty in China since November 2001, when the tax was lowered to 0.2 percent.

The latest cut, aimed at revitalizing investors' sentiment and cutting trading costs, boosted stock indices.

Shanghai's composite index rose 1.73 percent to close at 1,255.777, while Shenzhen's sub-composite index also advanced 1.82 percent to end at 3,111.40.

The stamp tax cut certainly helped boost market sentiment, said Xu Gang, general manager of the research department at CITIC Securities Company.

However, this cut alone is unlikely to support a sustained growth in the market, Xu said.

"Investors are still seeking more concrete solutions to the irrational share structure in the bourses."

Xu's view is echoed by many analysts and investors, concerned by the bearish performance of China's stock market over the past three years.

The Shanghai composite index shed 15.4 percent in 2004, bringing investor confidence to a new low.