Chinese government cuts stock market tax and restricts stock sales - financial expert

The Chinese government has taken further steps to support the recently weak stock markets. The stock exchange sales tax on stock transactions will be reduced, the Chinese Ministry of Finance announced on Monday night.

The country's stock market supervisors also announced that they would restrict share sales by major shareholders and the refinancing options of unprofitable companies. The government also wants to put the brakes on IPOs - although no specific plans were mentioned here. The package of measures was well received by investors.

The Chinese economy is currently struggling to return to its previous growth strength after the corona pandemic. The People's Republic is also struggling with a serious crisis in the real estate sector, which threatens to affect the entire economy. Just on Friday, the state news agency Xinhua reported that the Chinese government wanted to combat the real estate crisis with relaxed credit conditions.

Evergrande shares fall by almost 90 percent

However, shares in distressed real estate group Evergrande fell 87 percent when trading resumed in Hong Kong. The company postponed the planned creditors' meeting to the end of September a few hours before it was due to begin. The creditors should be given the opportunity to examine, understand and evaluate the conditions of the planned debt restructuring, it said in a statement.

Trading in Evergrande shares was suspended for 17 months after the company triggered a tremor in the Chinese real estate market with payment defaults almost two years ago.

Under the influence of the measures announced during the night, the CSI 300 temporarily rose by more than 5 percent. The index tracks the share prices of the largest companies on the Shanghai and Shenzhen stock exchanges. Most recently it was up a good two percent. The Hang Seng Index of China's Hong Kong Special Administrative Region rose 1.7 percent.

Restrictions on major shareholders

The agreed tax cut relates to the so-called stamp tax, which is levied on traded shares in China. The amount has been 0.1 percent of the trading value since 2008 and has now been halved to 0.05 percent. The reduction initially benefits brokers, but also certain hedge funds that rely on a quick turnover of positions. The name stamp tax goes back to the previously common practice of stamping documents and contracts.

The restriction on share sales by major shareholders announced by China's securities regulator applies under certain conditions: if the company has paid little or no dividends in recent years or the share value has fallen below the IPO level or below the book value.

These thresholds also apply when refinancing companies or if a company continues to make losses. However, in view of the crisis, real estate groups are exempt from this refinancing rule. This brought relief to most industry stocks on the stock market.

According to a report by www.zeit.de, the Chinese government has taken further measures to support weak stock markets. The stock exchange sales tax on stock transactions was reduced. In addition, restrictions on share sales by major shareholders and refinancing options for unprofitable companies were announced. The government also plans to put the brakes on IPOs.

These measures are expected to have an impact on the Chinese stock market and financial industry. Reducing stock exchange sales tax can have a positive impact on stock trading as it reduces transaction costs for investors. This could lead to an increase in trading volume. Restrictions on share sales by major shareholders can increase investor confidence and improve market stability.

Refinancing restrictions on unprofitable companies have the potential to change the business landscape in China. This measure aims to encourage companies to become more profitable and improve their financial health. This can lead to a stable economy and a healthy financial system in the long term. However, companies already affected by the real estate crisis could continue to come under pressure.

The Chinese economy is currently struggling with many challenges, including the effects of the corona pandemic and the severe crisis in the real estate sector. The government's new measures are an attempt to stabilize markets and restore investor confidence. It remains to be seen how effective these measures will actually be and how the situation on the Chinese stock market will develop. Investors should monitor developments closely and adapt their investment strategies accordingly.