To the West such blunt policy reversals seem to undermine the credibility of the government but given the importance on "stability" we should not be surprised.
Stock market rises 9.3% [China Financial Markets]
Last night the Ministry of Finance and the State Administration of Taxation announced that the stamp tax on the purchase and sale of stocks would be cut from 0.3% to 0.1%. Today, in response, the Shanghai Composite Index surged 9.3%.
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The cutting of the stamp tax was a widely-anticipated reversal of the move last year, on May 30, when in order to cool what seemed like a vastly overheated market, the stamp tax was raised from 0.1% to 0.3%. The market fell 6.5% the next day, and lost another 6.5% that week, if I remember correctly, but not for long. It quickly turned around and returned to its dramatic rise, surging another 75% or so to reach 6124 on October 16. Government attempts to manage stock market prices in China do work, for a while at least.
Since its peak in October, however, the market has plummeted to just below 3000 on Tuesday, losing over half its value, and creating a great deal of concern for the government – China’s is the world’s worst performing stock market year to date. The government is afraid both that the continued market slump may anger the newly-emerging urban middle classes and that it may translate into reduced consumption as savings are eroded (although according to Andy Rothman at CLSA at its peak the total market cap of traded shares was only about 36% of GDP, and is much less today).
This fear is a real one. However, I suspect this 9% will be short lived. There will be more pain to come imo.
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