When the Shanghai Composite Index finished at the historical height of 4,335.96 yesterday, the total market value of the A- and B-shares listed on two exchanges also exceeded that of the main board of the Hong Kong Stock Exchange for the first time in history. And stock account opening exceeded 380,000 on Monday.

But today, all the steam vaporized right away by the hike in stamp tax on securities trading from 0.1 percent to 0.3 percent, announced by the Ministry of Finance late last night and taking effect today.

The tax rise will cover buying and selling of both A and B shares. It will also apply to inheritance and endowments. The government lowered the rate from 0.2 percent to 0.1 percent in January 2005 in an effort to boost the then bearish market.

China has collected more than 100 billion yuan in stamp tax on stock transactions since the early 1990s, when it was first introduced.

According to the central bank's first-quarter monetary policy implementation report issued on May 10, the active trading in the stock market has resulted in rapid growth in stamp tax collection. In the first quarter this year, stamp tax reached 12.2 billion yuan, up 516 percent year on year.

Analysts believe the tax hike implied the country has no other choice but using a "shocking" fiscal policy tool to cool down the market, after a series of tightening monetary measures. However, compared with monetary policies, fiscal instruments usually take effect quicker but lack a lasting effect. The stamp tax hike can't stop the upward trend in China's stock market in the long run.

The China Securities Regulatory Commission is targeting insider trading lately. It has submitted two draft documents defining insider trading and setting rules against it to the Supreme People's Court for judicial assessment.

The new rules may be released very soon.

On the other hand, domestic commercial banks started an investigation campaign to find out capital inflows to the market from loans this week. From this Monday, all banks started self-examination and were expected to report to the authorities in mid June. Focus of the check would be the supervision over current capital loans, individual operational loans, especially large amounts of newly increased floating capital, to prevent such funds from being impropriated into the stock market.

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