It's been all smiles lately as Chinese investors have been living the dream of making fast money and becoming millionaires. Everything is great until the market turns, as it always does. The Chinese Government has never experienced a market meltdown but they are keenly aware of the history of stock market crashes in other parts of the world and are doing everything in their power to cool the market down. Yesterday was another big step in the right direction. Will the Chinese blow off another big down day and keep buying? Stay Tuned...
Chinese Stocks Fall for 2nd Day Amid Government Efforts to Cool Boom
BEIJING (AP) -- Chinese stocks fell Thursday for a second straight day after the government raised a tax on trading in an effort to cool a market boom amid fears of a price bubble.
The benchmark Shanghai Composite Index opened down 1.15 percent at 4,006.28 points. The Shenzhen Composite Index for China's smaller second market fell even further, opening down 3 percent at 1163.88.
The main index plunged 6.5 percent Wednesday after Beijing tripled the "stamp tax" on trades in an effort to cool a market boom that has seen prices rise by more than 50 percent this year.
The impact on markets abroad was muted, in contrast to February's global sell-off triggered by a Chinese decline.
The Chinese Finance Ministry raised the "stamp tax" from 0.1 percent to 0.3 percent, effective Wednesday. The official Xinhua News Agency said the ministry was trying to "cool (the) stock market."
Economists have warned of the danger of a growing bubble, while Chinese authorities have expressed concern that a fall in prices could hurt novice investors rushing into the market.
Millions of first-time Chinese speculators have opened trading accounts in recent months, dipping into savings, mortgaging homes and tapping retirement accounts to buy stocks.
But the direct impact of Chinese price swings on markets abroad should be limited, because Beijing keeps its markets largely isolated from global financial flows.
Most foreigners are barred from investing in the main class of Chinese stocks, while financial controls limit the ability of Chinese companies and families to invest abroad.
China's stock gains have been fueled by strong corporate profits and a flood of fresh money from millions of new investors sinking their savings into the stock market amid a scarcity of other investment options. Chinese banks pay just 3 percent interest on deposits.
Economists say a fall in the markets should have little impact on China's economy, because growth is driven by exports. Also, households have much more money in savings than in shares.
The stamp tax was set at 0.6 percent when it was introduced in the early 1990s but has been cut repeatedly to encourage the Chinese public to invest in stocks. It was cut to 0.1 percent in 2005 to lure investors back to then-sluggish markets.
