World stockmarkets have shaken off the impact of the latest moves by China to slow its booming stockmarket.
After a big drop in China and smaller declines elsewhere in Asia, other markets shrugged off the news, with the US bouncing higher on local factors about takeovers and upbeat commentary by the Fedabout the economy
The reaction in China today after yesterday's steep fall will tell us if this latest tapping of the brakes by the Chinese Governmenttocorrect the stockmarket bubble, will work, or whether more will be needed.
If past behaviour is any guide, it will be onward and upward for Chinese investors.
After freeing up some overseas investment rules, lifting interest rates and the official deposit reserve ratio for banks two weeks ago (the latest in a number of increases in interest rates and the reserve ratio over the past year), the Chinese government late Tuesday night went for a slightly larger stick.
It tripled the tax on securities transactions, stopping the relentless surge upwards from the last correction on February 28.
According to market reports, the value of shares traded on Shanghai and Shenzhen stock exchanges was a record 416.6 billion Yuan ($54 billion) yesterday; that's more than changed hands on the New York Stock Exchange on Monday and Tuesday of this week.
Stamp duty on share trades was increased to 0.3 per cent "to promote the healthy development of the securities market,'' the finance ministry said on its Web site Tuesday night.
It was cut to 0.1 per cent in 2005 to try and stimulate the market out of a four year slump.
The increase was the most decisive step yet by the Chinese authorities to deflate the runaway stock market boom.
The Shanghai Composite Index dropped as much as 7.4 per cent before ending down 6.5 per cent at 4,053.01; it's lowest since May 21. The Shanghai and Shenzhen 300 index, which covers both bourses, fell 6.8 per cent to 3,859.9.
That fall pushed Australian stocks backwards yesterday with the ASX200 index down 74.2 points to 6243.4 and the All Ordinaries off 67.1 points at 6271.7.
The move to triple the transaction tax on securities had the desired initial impact but whether it is a long term corrective is problematic.
The correction at the end of February was over before the first couple of days of March were finished and the losses had been recovered by the end of the same month.
But that recovery happened because investors saw through the attempt to 'jawbone' the market into cooling.
But Tuesday night's move is far more substantive and the subsequent fall broke a rally which had seen mainland share prices increase by around 60 per cent this year on top of 130 per cent last year.
Besides Australia, shares in Hong Kong, Japan and Singapore trading lower. And European markets traded lower as well. Securities of Chinese companies listed in New York had fallen Tuesday when the news broke there.
The number of share trading accounts established in China exceeded 100 million earlier this week as investors continued to plunge into the market.
Despite all manner ofarticles pointing out how few people traded shares in China, compared to the overall population and how few shares were actually in the free float of listed companies (with the remainder held by banks, state authorities and other long term holders), its obvious the Chinese authorities are worried.
Like so many things about the current Chinese economy and stockmarket picture, the absolute numbers are bigger than anyone can envisage: just consider 100 million investors, that's more investment accounts than people in Germany, for instance.
No country of China's size has grown so fast or had such a large number of investors, or been in such an odd mixture of state control/free markets/rampant capitalism. That makes for an outcome no can predict.
But the authorities sense a looming problem with growing concern; that's why they have been trying to 'talk' the market down or at least cool the speculation, but to no avail.
The tax increase is part of a balancing act that the government faces over the stock market: it is considered overvalued but no one wants to trigger a collapse, not even state-run China could withstand the unpredictable impact of 100 million holders of trading accounts suffering losses and being caught up in a plunging market.
The impact of this move is not expected to be substantial, more a warning.
China might have to hasten its already announced plans to make investing overseas easier for bank clients.
The Yuan has already been allowed to float more freely; tariffs have been changed on more exports in an effort to slow the build-up of trade surpluses.
The last resort would be a capital gains tax: even at a low rate it would have a symbolic and quite dramatic impact.
