According to draft regulation, trading would be suspended for 30 minutes when the market rose or fell by 5%. If the index went up or down by 7% or more, trading would be suspended for the day.
The mechanism could only be triggered once a day. “Circuit breaker in both directions will be conducive to curbing excessive transactions and reining in market fluctuations,” the draft from the securities regulator said.
It is the latest in a string of measures introduced by the Chinese authorities as they continue to grapple with wild fluctuations in the share market, which have fallen by 40% since June.
There were more jitters on Tuesday after figures showed that China’s foreign trade dropped 9.7% in August. Customs data showed that exports for August were down 6.1% but imports fell a whopping 14.3%, raising more questions about the strength of the country’s economy. In the first 8 months of this year, imports were down 14.6% while exports fell 1.6%.
However, Shanghai’s Composite index recovered from a poor start on Tuesday and was up more than 2% in afternoon trading. The Shenzhen Component index and Hang Seng in Hong Kong were also up strongly.
In Japan, the Nikkei index closed down 2.43% while the Kospi index settled at 0.24% in Korea.
It was a better day in Australia where the S&P/ASX200 closed up 1.69% at 5,115 points on news of possible takeovers in the energy sector.
According to Tuesday’s draft plan, the circuit-breaker mechanism would help prevent “excessive reactions of investors”. China’s stock market investors are mostly individual investors which can lead to panic selling.
Yang Delong, chief strategy analyst at the Southern Fund, said the idea showed “the government’s good intentions”.
“The introduction of the circuit-breaker aims at preventing future market plunges and stabilising the market. The A-share market has seen violent plunges recently, and with the circuit breaker mechanism investors would have a cooling period before taking irrational actions.”
The stock exchanges were soliciting public opinions on the plan and the public have until 21 September to comment.
In another bid to stabilise the markets, it was announced that Chinese investors who hold their stock for over a year will be exempt from a 5% dividend tax.
The ministry of finance said in a joint statement with the taxation authority and the securities regulator on Monday that if investors sold a stock after holding it for a month or less, they would be liable for a 20% payment of income tax on the dividend they receive. Investors who held a stock for between one month and a year would pay a 10% to encourage long-term investment instead of the short selling of stocks.
On Sunday, China’s securities regulator said that the country’s stock markets had stabilised and that market transactions are now normal for the most part. In a comment to the state news agency Xinhua, the China Securities Regulatory Commission said: “Gains on the stock market had been too rapid and large, forming stock market bubbles, therefore subsequent plunges and adjustments were inevitable.”
Additional reporting by Luna Lin
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