China's shares fell the most in almost three weeks on
speculation the government will reduce or remove the tax on
interest income to tame a stock-market boom and cool the
economy.
A source close to the central government said the Standing
Committee of the National People's Congress will vote on a proposal
authorizing the Chinese Cabinet to adjust or remove the tax on
interest income next week. The result of the vote is expected next
Friday, he said.
Anticipation of the tightening move saw the Shanghai Composite
Index drop 3.29 percent to close at 4,091.4 points on Friday. At
one stage, it slumped 4.87 percent.
A 20-percent tax on savings deposit interest for all renminbi
and foreign currency accounts opened by individuals at Chinese
banks was introduced in 1999, in a bid to reduce mounting
individual savings at the time.
But the tax failed to deter people from squirreling away money
into savings accounts over the past seven years until the stock
market, which revived in 2006, began drawing increasing funds into
stock investment.
Household yuan deposits in May fell by 278.4 billion yuan after
sliding in April for the first time since February 2003, according
to the People's Bank of China, the central bank. Some economists
predicted around 4 trillion yuan to flow from banks to bourses this
year.
The inflow of cash saw the major index climb to a record high of
4,269 points on Tuesday. The stock market had quickly rebounded in
less than two weeks from a rout that erased more than US$400
billion of market value due to the stamp duty hike on May 29.
Ma Qing, chief economist for Morgan Stanley Greater China, said
on Friday that an immediate money-tightening move was possible,
based on the results of the central bank's second-quarter
survey.
Morgan Stanley, Deutsche Bank and JPMorgan all said reducing or
removing the tax on interest income would be a near-term measure to
curb the overheating stock market and inflationary pressure.
(China Daily June 23, 2007)