China, new rate cut to restart consumption
by John Pons
MILAN – Beijing, which is grappling with an economic slowdown that could threaten financial stability – as recently demonstrated by the case of Zhongrong Financial Group (which is unable to satisfy its creditors because it is in the real estate sector) – is playing the Fiscal card out to attract capital.
It will do so by halving the stock transaction tax, a key measure aimed at restoring confidence in the world’s second largest stock market amid a slowing economy. The cut, which goes into effect Monday, is the first since 2008. “To stimulate capital markets and boost investor confidence, stamp duty on securities transactions will be halved effective August 28,” the Treasury and Internal Revenue Service said a joint statement. Previously, the tax was 0.1%.
by John Pons
The measure was eagerly awaited by mainland China’s stock markets, which were reeling from China’s flagging economy, the housing debt crisis, sluggish consumer spending and record-high youth unemployment.
The outflow of foreign investment from China has been so great in recent weeks that, according to the Bloomberg There have been 13 consecutive temptations of capital outflows from abroad on the Continental Stock Exchange: this had never happened before. It is no coincidence that Beijing’s financial authorities are putting pressure on large local corporations: banks have been urged not to back down from supporting the real economy, and large investors (from pension funds to large financial institutions) should continue to focus on domestic measures. Now there’s an added incentive: the 0.05% tax.
by our correspondent Gianluca Modolo
This is not the only initiative that has been taken: China’s securities regulator has cited “current market conditions” as the reason for slowing the pace of IPOs, without giving details on possible intervention options. He added that restrictions on the frequency and size of refinancing will be introduced for companies that experience repeated financial losses and whose share prices have fallen below initial or equity levels. A regulation that real estate companies evade, whose prices are severely affected by the crisis in the sector.
Exactly the symbol of these giants in crisis, Evergrande, announced today that it ended the first half of 2023 with a net loss of 33 billion yuan (about 4.5 billion dollars), halving the loss of 66.4 billion in the same period from January to June 2022 thanks to the increase in revenue. Evergrande shares return to Hong Kong trading tomorrow for the first time since March 2022.
by Philip Santelli
As mentioned, China last cut the tax in April 2008 to prop up markets after the crash. The year before, it had raised it to 0.3% to cushion a rally that was attracting more than 300,000 new investors a day, the finance agency recalled.