The Chinese government on Wednesday announced it is to cut the share trading stamp tax from 0.3 percent to 0.1 percent from April 24 in an effort to boost the equities market, which has fallen 46 percent from its record high on Oct. 16.
Experts and the public have been expecting such a concrete support measure to give a strong boost to weak investor sentiment, following heavy sell-offs this year.
The benchmark Shanghai Composite Index closed 4.15 percent higher at 3,278.33 on Wednesday, before the tax cut announcement. Despite the rise, it has dropped 37.7 percent this year after almost doubling last year.
With approval from the State Council, or Cabinet, the Ministry of Finance (MOF) and State Administration of Taxation (SAT) decided to cut the transaction tax, said a government statement.
The tax would be levied on both sides of the transaction, said the statement.
Qiu Yanying, an analyst at TX Investment Consulting Co., said the move showed the government's desire to see a stable market and would help to restore investor confidence.
"Confidence in recovery is more important than fund injections," said Qiu. "After earlier panic and irrational selling amid a breakdown in confidence, it is hard for the market to return to normal."
Qiu said the move was timely, and if it had been delayed, it could have triggered heavy losses and become less effective.
"Three thousand points is an important threshold for both regulator and investors and a sustained decline below the mark could be disastrous to investor confidence and trigger further selling."
The key Shanghai index dropped below 3,000 points only briefly on Tuesday, before bargain hunting pushed it to close 0.99 percent higher at 3,147.79.
The government raised the stamp tax to 0.3 percent from 0.1 percent on May 30 last year, in a bid to cool the stock market.