Shanghai stocks edge higher as China vows to cut taxes, boost public spending

Shanghai stocks edged higher on Tuesday after the Chinese government vowed to cut taxes and increase public expenditure to prop up slowing economic growth. At the midday break, the Shanghai Composite index was up 0.1 percent at 3,031 points, while the blue-chip CSI300 index was close to flat. CSI300's financial sector sub-index was lower by 0.4 percent, the consumer staples sector was down almost 0.1 percent, while information technology stocks rose 0.7 percent.

Chinese H-shares listed in Hong Kong fell almost 0.1 percent, while the Hang Seng Index was pretty much flat at 28,950.77 points. The smaller Shenzhen index was up 0.8 percent and the start-up board ChiNext Composite index was higher by 1.2 percent. The Chinese government plans to cut nearly 2 trillion yuan ($298.31 billion) in taxes and fees for companies, Chinese Premier Li Keqiang said at the National People's Congress on Tuesday, noting that fiscal policy will become "more forceful".

The special bond issuance quota for local governments, a key source for infrastructure investment, has been set at 2.15 trillion yuan, the finance ministry said in a report on Tuesday. The quota was set at 1.35 trillion yuan last year. The policies emerged as China experienced its slowest growth in decades. The government is targeting economic growth of 6.0 to 6.5 percent in 2019, Li said, less than the 6.6 percent gross domestic product growth reported last year. 

Market reaction was muted because "none of the targets come as a major surprise and most had been leaked over the past few months," Sue Trinh, a FX strategist at RBC Capital Markets, wrote in a memo on Tuesday. Around the region, MSCI's Asia ex-Japan stock index inched down 0.2 percent, while Japan's Nikkei index fell 0.4 percent. Li also vowed to reform and open up the financial sector. Top banking regulator Guo Shuqing said on Tuesday China can "absolutely" reach an agreement with the United States on opening up its financial sector.

Sino-U.S. trade talks have been difficult but the two sides have achieved a breakthrough in some areas and will continue their negotiations, Chinese Commerce Minister Zhong Shan said on Tuesday. Reports suggesting that Beijing and Washington were closing in on a trade agreement sent Chinese stocks to their near nine-month highs on Monday. Profit-taking was expected to follow such a rally, Kaiyuan Securities analyst Wei Yi wrote in a note.

"There is a lot of leveraged money here," said Wei. "Whenever they see profit mid-trade, they would… sell shares in the (leverage) financed accounts to lower the risk of leverage." So far this year, the Shanghai stock index is up 21.5 percent. The Shanghai stock index is above both its 50-day moving average and its 200-day moving average. As of midday, China's A-shares were trading at a premium of 23.51 percent over the Hong Kong-listed H-shares.

(With inputs from agencies.)