SHANGHAI, Sept 18: China moved to stabilise its stock market by abolishing tax on share purchases and buying shares in three major banks, state press reported on Thursday.

The government’s decision to cancel the 0.1 per cent stamp duty is “to encourage market confidence,” Xinhua news agency said in a brief dispatch. The move will take effect when markets open on Friday.

The Chinese government also began buying shares in three major banks, Industrial and Commercial Bank of China, Bank of China and China Construction Bank, Xinhua said, adding “operations had started on Thursday. “Cancelling the tax on buying shares was the biggest move to boost China’s stock market since authorities slashed stamp duty by two-thirds to 0.1 per cent from 0.3 per cent in April.

Investors responded then by going on a massive buying spree, pushing the benchmark index up by nearly 10 per cent for the largest single-day gain in more than six years. “Coming only three days after China announced its first interest rate cut in six years, this move signals the government’s more proactive approach towards restoring market sentiment,” JP Morgan analyst Jing Ulrich said.

Under the new rules, sellers of shares will still have to pay 0.1 per cent stamp duty, according to the Xinhua report.

When the government reduced the stamp duty it was seen as the most drastic move taken so far by a government keenly aware that a collapsing stock market would affect the fortunes of millions of middle-class families.

Completely cancelling it for stock buyers indicated how serious the situation had become after the key Shanghai Composite Index lost 64 per cent of its value since the beginning of the year.

“By announcing these policies amid continuous falls, the government is sending out an explicit signal that it is concerned and wants to inject confidence in everyone,” said Yan Li, Beijing-based analyst with Southwest Securities.

“It wants to make its attitude clear: the government will not let the capital market be,” she said.

The Chinese government’s investment arm, Central Huijin Investment Co. Ltd., starting buying shares in the three banks to “shore up their share prices,” Xinhua said. Cash-rich Central Huijin was set up earlier this decade charged with reforming state-owned banks burdened with a high ratio of non-performing loans.

“Large state-run firms are most heavyweighted in the market and their performance plays a key role in stabilising the index, so the policy is a boost to market stability and confidence,” Yan said.—AFP