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Hong Kong Financial Secretary Cautions Against Tax Reduction as Possible Solution to Revive the City’s Stock Market

Hong Kong’s Financial Secretary, Paul Chan Mo-po, has expressed caution regarding lowering the tax on securities trading in an attempt to revive the city’s sluggish stock market. In his weekly blog, Chan warned that piecemeal measures might be counterproductive and that reducing the stamp duty would not address the structural issues affecting the market. This statement comes after the formation of a 13-member task force, led by Carlson Tong Ka-shing, to review the stock market’s lackluster performance and suggest remedies.

Chan highlighted the underwhelming performance of the Hong Kong stock market, citing an 8% decline in the benchmark Hang Seng Index in August and a daily average turnover of HK$100 billion (US$12.7 billion). He emphasized that more comprehensive strategies are needed to stimulate long-term turnover and reiterated the potential negative impact of partial stimulus measures on investor confidence.

The government announced the establishment of the task force last Tuesday, with the aim of examining stock market liquidity, listing regulations, market structure, and trading mechanisms to strengthen Hong Kong’s position as a global financial center. The Hong Kong Exchanges and Clearing, responsible for managing the stock exchange and vetting listing candidates, will be involved in the task force’s work.

Chan expressed confidence in the task force’s ability to assess the stock market’s strengths and challenges, as well as formulate short, medium, and long-term strategies. He noted that the task force members would meet for the first time this week and include financial experts and regulatory specialists.

These remarks from the Financial Secretary come after mainland China’s sudden decision to reduce stamp duties on its stock exchanges by half to 0.05%. Some local stockbrokers and lawmakers have advocated for a similar approach in Hong Kong, but Chan argued that despite a 30% increase in stamp duty in 2021, securities trading turnover rose by 2% year-on-year between August and December. He attributed fluctuations in trading activities to geopolitical factors and market sentiment.

The task force will examine various factors, including the listing regime, market structure, and trading mechanisms. It will also explore ways to attract quality enterprises and innovate investment products to increase the turnover rate of stocks. Chan concluded by expressing hope that the task force’s expertise would lead to effective strategies for the stock market’s revitalization.

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