China faces calls for "massive fiscal stimulus" amid slowing economy

(Alliance News) - China's efforts to boost its stock markets with a tax cut on trades is one of the country's latest attempts to help kickstart its ailing economy, but the measures still fall short of the "bazooka" stimulus many investors are hoping for.

On Monday, news came that China's regulators had decided to cut in half tax paid on stock trades.

The Ministry of Finance and its State Taxation Administration said in a joint statement the move was designed to "invigorate the capital market and boost investor confidence".

Officials also said they would slow the pace of new listings, which usually suck up market liquidity.

While the tax cut - the first of its kind since 2008 - was welcome news to investors, the reaction from the markets likely fell short of the government's hopes.

Key stock indices such as the Hang Seng and Shanghai Composite surged on Monday, before pulling back to close the day only a percent or so higher. However, they continued to rise on Tuesday, adding 2.0% and 1.2% respectively, after further policy announcements were drip-fed.

On Monday, Finance Minister Liu Kun and National Development & Reform Commission chair Zheng Shanjie said they would provide more policy support and speed up government spending, according to the official Xinhua news agency.

"Whether the medicine Beijing is doling out will deal with the causes rather than just the symptoms of its economic challenges is debatable, but for the time being it is at least doing enough to restore sentiment," noted AJ Bell investment director Russ Mould.

The Chinese government is increasingly facing calls to announce a more extensive stimulus, which investors have been bracing for since its central bank announced a cut to a key interest rate back in June.

"Before 2020, any stimulus news from China would move oceans, but now, China can cut rates, inject liquidity, half stamp duty, prevent big names from becoming net sellers… nothing is enough to bring investors back apart from a massive fiscal stimulus," said Swissquote Bank senior analyst Ipek Ozkardeskaya.

"The chances are that, China won't do that, because Xi doesn't want to explode the national debt levels – which are already alarmingly high – to kick start another unsustainable growth in China. That's not bad in the long run, but it sure costs China a lot of investment."

The range of challenges facing China's economy is fairly extensive, with falling exports, slowing economic growth and signs of serious liquidity trouble in its construction sector.

By Elizabeth Winter, Alliance News senior markets reporter

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