Others News
- Tax cut prospect, Wall Street gain buoy Chinese shares more than 4%
Date: 30-Nov-2007 Sources: (People's Daily)
Chinese share prices surged 4.16 percent Thursday on reports that new corporate tax rates will take effect on Jan. 1, 2008.
Under new laws and accompanying regulations, domestic companies will see their maximum tax rates fall and foreign companies operating in China will lose most of the tax breaks that have given them a competitive advantage over many domestic producers.
The maximum for both categories of company will be 25 percent. Domestic companies now face a maximum rate that can exceed 30 percent, while many foreign companies pay half that rate or even less, if they have been given limited-duration tax holidays.
The State Council, or China's cabinet, on Wednesday passed a draft of the regulations. The council's action means that it will be the first time since 1978 that a unified tax system exists for foreign and domestic firms.
The benchmark Shanghai Composite Index, which covers both A and B shares traded on the Shanghai Stock Exchange, rose 199.94 points to 5,003.33 points.
The Shenzhen Component Index was up 560.12 points, or 3.65 percent to close at 15,919.28 points.
The tax news was not the only factor buoying the market: the overnight rally on Wall Street, which rose 2.6 percent, was also a factor in China's rebound, said analysts.
Major oil and banking stocks in particular made a strong recovery from losses of recent days that have taken the market to new three-month lows.
'The law will markedly relieve the tax burdens on most listed firms, which will increase their net profits,' said analysts with China Galaxy Securities. 'The law is a good piece of news for the stock market.'
'Overall, domestic firms will have their competitiveness strengthened,' said analysts with Ping An Securities.
Net profits are expected to rise significantly for China's banks, beverage producers, steel makers, coal mines, telecommunications firms and oil and chemical companies, which currently pay tax at rates of more than 25 percent.
Heavyweight stocks surged, with PetroChina rising 2.8 percent to stand above 33 yuan, following eight consecutive days of losses.
The Industrial and Commercial Bank of China, the country's largest lender, gained 6.37 percent, while China Life, the country's number one life insurer, rose 6.67 percent.
The Bank of China also performed strongly and closed up 4.78 percent.
Many Chinese investors have been hit with large losses in the past six weeks, during which the Shanghai Composite Index tumbled from 6,092 points to 4,803 points on Wednesday.
However, the slump has also cut the price/earnings ratio on the A-share market to 36.85 from 45 on Oct. 16, and some analysts believe that shift marks a buying opportunity.
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