Stock market Illustration: VCG

China will cut stamp duty on trading by half on Monday, a move that is expected to trigger a rally in the capital market and serve as an immediate boost to market confidence and the world's second-largest economy amid a global economic downturn, industry observers said.  

Coming as Chinese authorities mull measures to further activate economic growth, the move is the most "heavyweight one," they said, predicting a rally in China's equity market and an inbound rush of overseas capital.

The news was announced by the Ministry of Finance in a short statement on Sunday, which said the measure was launched "in order to invigorate the capital market and boost investor confidence."

The stamp duty on stock trades is now 0.1 percent.

The cut is unusual and the first since 2008. In April 2008, Chinese stock regulators slashed the levy from 0.3 percent to 0.1 percent when the market was hitting its lows, spurring a bull run. The bull run extended into 2009, as the Shanghai Composite Index gained more than 80 percent during that year, making it one of the best-performing major stock markets globally.

Chinese investors were thrilled about the news, hoping for a "repeat of the miracle" in 2008 at the Monday opening. 

Looking at the impact of adjustments to stamp duty in the past 25 years, almost every case has generated significant positive momentum for the market, Yang Delong, the chief economist at Shenzhen-based First Seafront Fund Management Co, told the Global Times on Sunday.

"The news is a great boost to China's economy, and overseas capital is expected to rush into Chinese equities on Monday," a veteran industry observer surnamed Li told the Global Times on Sunday.

Also on Sunday, China's securities regulator, the China Securities Regulatory Commission (CSRC), revised the rules for margin financing and securities lending business as a package policy tools to boost investor confidence. In a statement, the regulator vowed to reduce the minimum margin ratio for investors to buy securities from 100 percent to 80 percent. 

This move will take effect from September 8.

Pan Helin, a joint director of the Research Center for Digital Economics and Financial Innovation affiliated with Zhejiang University's International Business School, told the Global Times on Sunday that the move could lead to a "conspicuous recovery" of the market in the short term, though he said combined measures are still needed to ensure the long-term health of the stock market.

The move could return 130 billion yuan ($17.83 billion) to investors in form of waived fees, based on the volume of stamp duty collected in 2022, Pan said, noting that this is a concrete benefit that the regulator gives to investors.
 
The regulator's move to invigorate the market and boost investor confidence could act in synergy with the macro-economy in September, which is traditionally a month of brisk consumption and investment, Pan predicted.

The latest policy also comes after China made a pledge to "invigorate capital markets and boost investor confidence" last month. Since then, Chinese regulators have rolled out targeted and substantive measures to revitalize the capital market and boost investor confidence.

On August 18, the CSRC announced a raft of support policies, including cutting transaction fees, developing equity funds and considering the creation of a "green channel" for technology companies that aim for breakthroughs in core technologies.

Dozens of A-share listed companies have since announced buyback plans. Oil major Sinopec said on Sunday that it will allocate 800 million yuan to 1.5 billion yuan for buybacks.