China's stock market sheds 6% after rise in trading tax

The Shanghai composite index swung wildly before ending the day at 4,053.09 points, wiping out the past ten days of gains. Leading Chinese stocks had previously climbed nearly two-thirds this year to Tuesday's record closing high.

London closed off four points and Wall Street was down four points by 5pm London time.

The Chinese ministry of finance announced after midnight on Tuesday that it was raising the stamp tax to 0.3 per cent from 0.1 per cent. It was the latest in a series of official steps, including an interest rate rise this month, to take the froth out of the market.

Analysts said that, by targeting the speculators who have accounted for much of the trading turnover in recent weeks, the tax hike could hurt the market in the short term, but they did not expect it to cause a crash or reverse a long-term uptrend.

"The bull market is not over yet," Royal Bank of Scotland said in a report, predicting that Chinese authorities would step in if necessary to prevent a collapse of the market, which is key to their economic reform plans.

Leon Goldfeld, chief investment officer of HSBC Investments (Hong Kong), added: "The increase in the stamp tax ... is significant in that it is directed at the stock market, unlike previous measures, which targeted the economy.

"However, the increase itself of 0.2 per cent is not substantial. The record high for the stamp tax was 0.6 per cent in 1990."

According to China's finance ministry, the recent move is to "promote the healthy development of the stock market".

Analysts said the measure also appeared to target short-term traders, rather than long-term investors. One said: "It levies a higher cost on equity trades, but does not tax longer-term capital gains, thereby not hurting long-term investors as much."