State firms told to buy back shares Beijing took another substantial step yesterday to revive the moribund stock market, announcing that it would phase out the trading tax on share purchases, and the chief state-asset regulator called on government-owned companies to buy more shares. Stock buyers will be exempt from paying the 0.1 per cent stamp duty from today, the Ministry of Finance said after trading ended yesterday. Li Rongrong, chairman of the State-owned Assets Supervision and Administration Commission (Sasac), also said state-controlled parent companies were encouraged to buy back more shares on the market amid the 'rosy economic outlook'. The scrapping of the stamp tax and Mr Li's remarks were part of Beijing's efforts to rescue the market from the global mayhem which has wiped trillions of dollars off stock exchanges around the world. 'It is a correct move to scrap the tax on buying [shares] because the returns from cash dividends on the mainland are normally small,' said Guotai Junan Securities analyst Zhang Kun. 'But the timing of the policy is questionable.' The Shanghai Composite Index fell 33.21 points or 1.72 per cent yesterday to 1,895.84, the lowest since November 24, 2006. The gauge shed as much as 6.6 per cent, hitting an intraday low of 1,802.33, before strong afternoon buying helped it recover most of its losses as rumours of the government move spread through the market. The Sasac published Mr Li's comments on its website after the market close in a bid to restore investor confidence. It was the first time that a senior state-asset regulator had openly encouraged stock buying since the market started to dip on fears that it would be swamped by an influx of share issues. Hundreds of billions of formerly non-tradable state shares are becoming free-floating this year as their lock-up periods expire. Mr Li also said late last year that state firms would not seek to reap profits from equity trading when the key index hovered around record-high territory. 'We believe the economic outlook is rosy and the state-controlled companies are all in good shape,' he said yesterday. 'We support the state companies to buy back more shares based on their own conditions.' In the meantime, Xinhua also said Central Huijin, a government investment arm, had decided to buy shares in three major banks - Industrial and Commercial Bank of China, Bank of China and China Construction Bank Corp - because of their low valuations. 'The market will see a rebound again,' said Dazhong Insurance fund manager Wu Kan. 'But the strength of the expected rally won't be enough to shake off the bearish sentiment.' Beijing reduced the stamp duty from 0.3 per cent to 0.1 per cent in April, displaying its determination to arrest a market decline, only to find a government-orchestrated rally followed by an even sharper decline. The Shanghai index has plunged 68.9 per cent since its peak in mid-October last year and has lost 64 per cent this year. 'Going forward, additional measures to boost the market could include the establishment of a stabilisation fund for the domestic market and further reform of the rules pertaining to the sale of previously non-tradable shares,' said Jing Ulrich, JP Morgan's chairman for China equities.