Beijing Makes a Small Move to "Save the Market"

Finally the Chinese Government is beginning to take some action on preventing its stock market from disappearing into an abyss. It comes following its cutting of both the benchmark interest rate by 0.27 percentage point and deposit reserve rate by 1 percentage point

The Ministry of Finance has announced that from September 19, the stamp tax on stock trading will be cut from round trading (selling and buying) to single-sided trading (selling only).  This is unlikely to have any great effect on the market, but it’s a start.

Also, Central Huijing Investment Company, a subsidiary of China Investment Corporate, China's sovereign Wealth Fund, has announced that it will up its holdings in the Industrial and Commercial Bank of China, Bank of China, and Construction Bank of China. It has not given details about amounts. Since the funds CIC  holds are in US dollars and Huijing holds dividends in renminbi from the listed state-owned banks, it is not clear how it would operate, whether by using RMB to buy A shares in the Shanghai Market or exchanging US dollars for HK dollars to buy H-shares  in Hong Kong. Central Huijing said the purpose of the increase is to "guarantee control of the major state-owned financial institutions, such as ICBC, BoC, and CBC.

And the State Assets Supervisory and Administration Commission (SASAC) has said it is encouraging listed state-owned giant companies to buy back stocks. Li Rongrong, the Director of the SASAC said, "(we) hope to get financial support," though he did not gave details on where that "financial support" might come from.

Chinese investors see these moves as being influenced by the US government's recent action to bail out ailing insurance giant AIG by lending it $85 billion dollars to get through a "short-term liquidity problem," a move they equate with the US government "saving the market."  Actually, the two country’s difficulties are quite different, but to investors, government action is government action.