TO THE POINT: The mainland stock market, which has plummeted almost 50 percent since its peak last October, was rallied by two government-led efforts to boost investor confidence: a reduction in the stock trading tax from 0.3 percent to 0.1 percent, and the adoption of stricter regulations on block trading. The recent stock market slump has undermined mutual fund performance, as the sector showed losses of $92.5 billion in the first quarter. China's textile exports have slowed due to surging costs. And finally, India's Tata Group has ambitions to tap into the Chinese market. By LIU YUNYUN

Stamp Tax-A Two-edged Sword

The long-awaited stamp tax reduction was finally implemented on April 24, prompting the highest surge at an opening of almost 8 percent.

Investors applauded the government's decision to trim the tax and began active trading. The trade volume in the first half hour of trading on April 24 was valued at 56 billion yuan ($8 billion), while the total trade volume for the entire day before was a mere 88.5 billion yuan ($12.6 billion).

The securities stamp tax, a widely debated topic in the mainland stock market, brought the government 59.7 billion yuan ($8.53 billion) in revenue in the first quarter, nearly four times the amount of the same period last year. This influx boosted government tax revenue but at the same time dampened investors' interest in trading stocks.

Dongfang Daily reported that the first quarter securities stamp tax was almost equivalent to the entire dividends paid by listed companies in 2007. Also in the first quarter, the stock market lost over 30 percent in indexes, causing huge losses for stock traders.

At midnight on May 30, 2007, the Ministry of Finance announced to raise the stock trading stamp tax rate from 0.1 percent to 0.3 percent in both buying and selling efforts, leading to four consecutive days of stock market losses. Through this action, the government hoped to curb the stock bubble. However, shortly afterwards, the bullish mainland market shrugged off the negative impact and marched toward a record high in October.

But after a half-year bearish run and stricken by numerous negative influences, investors called for the government to cut the stamp tax to rejuvenate market confidence.

Initial Recipe

Having observed the stunning stock market slump from the sidelines over the past few months, the Chinese Government finally stepped in to do something.

On April 20, the China Securities Regulatory Commission (CSRC) ordered major shareholders to sell stocks through a block-trading system if they expected to sell a large amount of shares freed from the lock-up period.

The huge amount of non-tradable shares being made tradable has cast a shadow over the stock market and is one of the major factors causing the half-year market turmoil. Investors feared such shares might squeeze large amounts of money, leading prices of shares to fall significantly.

Now, according to the CSRC, if more than 1 percent of a listed company's total shares are sold within a month, stockholders must use the block-trading system.

The new regulations pushed the benchmark Shanghai Composite Index (SCI) up 6 percent at its opening on April 21. The market quickly plummeted again and gained only 22 points, or 0.72 percent at the closing. The numbers reflected a lack of confidence among investors.

There had been several factors preventing investors from actively trading stocks. These include non-tradable shares being made tradable, large refinancing plans of listed companies, profit drops by listed companies, the influence of a stumbling international market and the cash outflow from the stock market into property market.

Heavy Blow to Mutual Funds

After two rewarding years in 2006 and 2007, mainland mutual funds encountered heavy losses in the first quarter with 346 funds losing approximately 647.5 billion yuan ($92.5 billion), eight times the amount of the previous quarter losses, according to TX Investment Consulting.

Equity funds, which contributed to most of the profits in the past two years, suffered the biggest loss of up to 466.6 billion yuan ($66.66 billion). China's stock market has undergone a bearish run since the fourth quarter of last year. The SCI nosedived from 6,124 points in last October to around 3,000 points in late April, losing 50 percent. In late April, 133 mutual funds' real value dropped under the paper value of 1 yuan ($0.14).

In the first quarter this year, SCI lost 34 percent and had continued by further losses in April.

Bond funds and currency funds, which pursue conservative investment and were once the least favorite of individual investors, made some profit in the first quarter. Currency funds contributed the biggest profit of up to 9.14 million yuan ($1.31 million).

Investors' interest was deeply injured in the two-quarter market slump. Many were entrapped either in the stock market or in the fund investment. The citizens opened more than 160 million accounts with fund management companies. To date, the value of all mutual funds stood at 2.5 trillion yuan ($357 billion), or 23 percent of tradable value in the mainland stock market.

The Chinese securities watchdog tightened its supervision over fund managers' trading behavior and recently fined two managers for insider trading-the first of its kind in history.

Wang Limin, a former Southern Fund Management Co. star trader, and Tang Jian, a manager with China International Fund Management Co. (CIFM, a partner of U.S. JPMorgan Chase), were fined 500,000 yuan ($71,000) each. Their illegal gains from insider trading of 1.51 million yuan ($216,000) and 1.53 million yuan ($219,000) were confiscated. The latter was forbidden to trade for his whole life.

"Actually, our company is also a victim," said Zhu Geyu, a marketing manager at CIFM, adding the company's public image and reputation was hurt by Tang's behavior.

Indian Giant Sweeps in

Tata Group, India's largest private sector conglomerate, reaped $65 million in revenue in the 2007-08 fiscal year in China (from April 1, 2007 to March 31, 2008), double that of the previous year, according to Alan Rosling, Executive Director of Tata Sons Ltd.

Rosling said Tata Group's procurements in the Chinese market grew 300 percent to $1.6 billion in the same fiscal year from a year earlier. Tata, arising from another major emerging national economy, has wanted to take advantage of the robust Chinese economy since its arrival in China 149 years ago.

"China will become a marketing, manufacturing and purchasing center for Tata," said Rosling, showing the Indian giant's keen interest in the Chinese market.

Tata has been very active recently with acquisitions in the international market. For instance, Tata Motors bought two luxury auto brands-Land Rover and Jaquar-from Ford Motor Co., Tata Steel, meanwhile, purchased Corus Group Plc., which was Europe's second largest steel manufacturer. The acquisition further boosts Tata's presence in the global market and is expected to contribute to its revenue.

Rosling said Tata's strategy in developed countries is based on mergers and acquisitions to quickly enter the market, while in developing countries, it follows a traditional way of business growth.

Zhong Shi, an auto analyst, admitted that Tata is highly adept in international operations and its movements provide valuable experience for its Chinese counterparts.

Switching Interests

The first phase of this year's Spring China Import and Export Fair (Canton Fair) ended on April 20, seeing rising exports of home appliances, electronics, mechanical equipment, and metal products. But shoes and textiles were having a hard time, because their profit margins were squeezed out due to various export tightening measures of the government.

Exporters all raised their prices due to the Chinese currency's appreciation, rising raw material prices and more costly human resources. The first two sectors bore the heaviest burden, and saw fewer customers from Europe and America. Many urged the purchasers to use the euro instead of the U.S. dollar to avoid further dollar devaluation.

The situation for home appliance companies is optimistic. Midea Group reported a 10-percent increase in prices. It exported a total value of $1.04 billion in the first quarter, up 33 percent from a year earlier period.

Xu Bing, spokesman for the fair, said among all the deals inked, the EU takes first place. The Middle East replaced the United States to be the second.They made respective purchases worth $7.62 billion, $3.66 billion and $3.34 billion of products from Chinese exporters. Xu attributed the decline of U.S. purchasers to the aftermath of the subprime mortgage crisis, which hurt U.S. consumers' purchasing power.

Numbers of the Week

27.3 million

In the first quarter, the number of mobile phone users subscribing to the service of China Mobile and China Unicom grew by 27.3 million. However, the number of fixed-line users, using services of China Netcom and China Telecom, continued a nine-month drop, losing 4.88 million customers.

593 million yuan

Ningbo Bird, once a leading cellphone manufacturer, experienced a 593-million-yuan ($85 million) loss in 2007. It blamed counterfeit cellphones for the profit slump.