Desperate to Stem Speculation, China Triples Stock Trading Tax

May 29, 2007 (LPAC)--The Chinese Ministry of Finance announced today that it will triple the tax on stock securities trading. This follows a series of moves this year to dampen China's overheated financial markets. The announcement comes on the same day that the head of the Hong Kong Monetary Authority warned of the effect of a sudden depreciation of the U.S. dollar. The new Chinese policy, effective May 30, will raise the stamp tax that investors must pay on each stock trading transaction, to 0.3%, from its current 0.1%.

More than 20 million accounts to trade stocks have been opened at brokerages in China so far this year, four times the amount in all of 2006, according to the China Securities Depository & Clearing Group. The number of brokerage accounts in China has topped 100 million for the first time ever.

The Shanghai stock market's benchmark CSI 300 index has been surging. According to Bloomberg data, the CSI 300 Index is trading at a whopping 48 times earnings.

The Chinese government has taken a series of incremental measures to slow speculative investment. On Feb. 27, it tightened measures for investing with borrowed money, which sent the CSI Index tumbling 9.2% for the day (it soon rose again). On May 18, the Chinese central bank raised the one-year bank deposit rate at banks from 2.79%, to 3.06%, as a step to tighten liquidity. One week later, the stock regulatory authority instructed brokerage firms to have investors sign a declaration that they are aware of the risks when opening stock-trading accounts. Thus far, these measures have had only a modest effect on the rise of the stock market.