The curious case of raising stamp duty

March 03, 2021 10:11
Photo: HK Government

Do not bite the hand that feeds you. That is not just the top rule in journalism but also a lesson Paul Chan should learn – if he wants to keep his job, not to mention promotion.

In an interview with Bloomberg on Tuesday, our Financial Secretary failed to calm down worries about the impact of higher stamp duty, merely pointing to the surge in stock trading volume and stressing the moderate hike in stamp duty would not harm the competitiveness of Hong Kong’s financial market.

Unfortunately the market did not react as he might have thought. Hang Seng Index immediately collapsed around 11am, shedding almost 500 points before ending the day with a 356 point decline at just above 29,000.

The sharp reverse, against the rebound seen in Dow Jones overnight and other regional markets except China, prompted some harsh comments by mainland netizens who believed Chan halted the music of the bull market.

True, Chan, seen as a leading candidate of the 2022 Chief Executive election, did not say he would raise the stock transaction levy further, but his evasiveness caused another panic among mainland investors, evidenced by the capital outflow recorded yesterday.

One netizen noted Chan should be fired while another said the Shenzhen and Shanghai stock exchanges should slap a similar increment on stock trading tax in retaliation. All in all, not a few mainland retail investors, commonly known as big mother (da ma), believed they are screwed.

Of course, it is more convenient for them to blame Chan than China Banking and Insurance Regulatory Commission Chairman Guo Shuqing, who said yesterday China is studying ways of properly managing capital inflows to prevent excessive turbulence in the domestic market amid capital influx, as the authorities are “very worried" about the risk of bubbles bursting in foreign markets.

For the first time its 28 years, Financial Secretary decided to raise the stock stamp duty to 0.13 per cent from 0.1 per cent last Wednesday when he unveiled the upcoming budget. The levy would bring an additional HK$8 billion income for the government,

The brisk trading activities of the local bourse has been one of the few bright spots in an otherwise lackluster economy, thanks to the cross-border capital that pushed stocks such as Tencent, Meituan and other new economy stocks to a record level.

The move was perceived negatively by mainland investors who felt they were penalized by the new tax.

Mainland companies made up most of Hong Kong’s stock turnover. In its latest overhaul, Hang Seng Indexes Company said it would retain 20 to 25 Hong Kong companies in the new HSI index with 80 constituents by mid-2022, and eventually 100 constituent stocks.

Stocks with mainland exposure have become the market focus with overall share performance of the mainland industry leaders outshining that of Hong Kong-based companies in the last few years – and especially in the year of pandemic when investors bought up new economy plays.

Interestingly the global stock markets seemed to take a breather after Chan’s proposal. Now people found an excuse to blame for the market correction, even the pro-establishment camp pointed fingers at him.

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EJ Insight writer