Shanghai: China’s benchmark stock index plunged 7.7% on Monday after the government’s main business newspaper signalled that officials won’t try to halt a slump that’s erased more than $350 billion (Rs14 trillion) of market value in four days.
The CSI 300 Index dropped 292.52 to 3,511.43, the biggest points slide on record. The measure, which doubled in the past six months, has tumbled 16% from its 29 May peak after the government tripled the tax on share trades to 0.3%.
The speed at which stock prices soared was “extremely unusual” and highlighted “structural bubbles” in the market, the state-owned China Securities Journal wrote in an editorial. More than half of the stocks included in the CSI 300 fell by the 10% daily limit, including Huaneng Power International Inc., the nation’s largest electricity producer, and Air China Ltd, the biggest international carrier. “There’s panic selling” in China, said Yan Ji, who helps oversee $517 million at HSBC Jintrust Fund Management Co. in Shanghai. “Investors are convinced the government won’t do anything to support the market.”
China Vanke Co. led declines among property developers after a newspaper report said the government will soon announce measures to cool the real-estate market, including increasing the supply of land.
Even after the recent declines, the CSI 300, which tracks yuan-denominated A shares listed on China’s two exchanges, is up 72% this year.
A 9.2% decline on the CSI 300 on 27 February sparked a global selloff that wiped out about $3.3 trillion of stock market value. The index’s fall, triggered by a crackdown on investments with borrowed money, was its biggest decline since the measure was introduced in April 2005.
Volatile price moves within each trading day reflected the “weak sentiment” among investors and the fact that the rally was “unsustainable”, China Securities Journal, which is affiliated to Xinhua News Agency, said. The CSI 300 on Monday gained as much as 0.5% and fell as much as 7.9%.
China’s increase in stamp duty is a “proper forward-looking adjustment” to avoid greater “systemic risks” in the market and to ensure its healthy development, the paper said.
China may ditch a 20% tax on interest on bank deposits to try to deter people from switching money into shares.
“Scrapping the interest tax may help increase bank saving and shift money back from the stock market,” said Ni Hongri, a tax researcher at the State Council Development and Research Center. “Stamp-duty increases will remain the government’s first option, while interest-tax reform may be an option that follows.”
Inflation was 3% in April, compared with a benchmark one-year deposit rate of 3.06%. Huaneng Power plunged 1.60 yuan to 11.89, while Air China slid 1.07 yuan to 9.68. They have lost 19% and 13%, respectively, since stamp duty was raised last week.
China Petroleum & Chemical Corp., Asia’s biggest oil refiner, dropped 1.52 yuan to 13.65. China Vanke, the nation’s biggest property developer, retreated 1.82 yuan, or 10%, to 16.38. Poly Real Estate Group Co., China’s third-largest developer by market value, dropped by the daily limit, sliding 3.94 yuan to 35.51.
China has stepped up measures to curb lending that’s fuelling a surge in real estate prices, seeking to maintain social stability. The government in February tightened tax rules on property gains, after it earlier raised interest rates and taxes and restricted lending to developers. Average prices in China’s 70 top cities rose 5.4% in April from a year earlier, according to the country’s top planning body. The Shanghai Composite Index, which tracks the bigger of China’s bourses, slid 8.3% to 3,670.40. The Shenzhen Composite Index, which covers the smaller ones, lost 7.9% to 1,039.90.
Xiaowei Li in Shanghai, Li Yanping in Beijing, and AP contributed to this story.