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China raises stamp tax on securities to cool stock market

China will raise the stamp tax on securities trading from the current 0.1% to 0.3% beginning May 30, the Ministry of Finance said Tuesday night.

An official with the ministry said the tax rise, which has been approved by the State Council, or the Chinese cabinet, is intended to help promote the healthy development of the securities markets. This move came after China announced on May 18 hikes of benchmark interest rates and bank reserve requirement as well as widening yuan floating range against US dollar, in a bid to curb excessive liquidity and cool the overheated economy. „It is a drastic correction and will increase cost of transaction quite a lot,” said Cai Zhizhou, a researcher with Peking University.

„This move aims for a more rational sentiment among investors,” he said. China imposed a six per thousand stamp tax on stock transactions when its stock markets were created since 1990. The tax rate was later readjusted a couple of times, with its latest change occurring in 2005, when the government halved the tax rate from 0.2% to 0.1% in a bid to boost the depressed equity market. Driven by the huge transaction volume, China's securities stamp tax revenue more than doubled in 2006 to 17.95 billion yuan ($2.24 billion) and skyrocketed 516% to 12.1 billion yuan in the first quarter of 2007. (english.people.com.cn)