Rising inflation is badly eroding the value of savings in China, where people tend to save as much as 40% of their income in the absence of a solid social welfare system.

This has helped to fuel a boom in share buying, which has replaced bank saving as the most popular investment option in China and stoked fears of an unsustainable bubble. The country's stock market rose 130% in 2006 and has risen by over 50% already this year, despite some vertigo-inducing corrections that have caused ripples around the world.

China has seen the introduction of record numbers of new share-trading accounts which now add up to over 100 million. A central bank survey last month showed that consumers now prefer shares to deposit accounts.

The regulators hope that changing the tax, first introduced in 1999, would make saving in banks more attractive. JP Morgan economists said removing the tax would be the equivalent of a 60 basis point rate rise for savers.

The move into share ownership has been driven by ordinary investors, such as former State-owned Enterprise (SOE) employees, students and fledgling business people in the booming 'New China'.

These investors are unable to invest in property but are unhappy with the returns they are getting on their bank deposits, because rising inflation has brought real deposit rates close to zero. Rising food prices in China have seen CPI creep up to 3.4% in May.

The benchmark one-year deposit rate is now 3.06%, just slightly higher than the 2.9% rise in the consumer price index to May this year.

"What's really happened is a shift out of long-term savings deposits in favour of more liquid short-term deposits, " said Jonathan Anderson, chief Asia economist at UBS in Hong Kong.

"The domestic stock market has been booming, with a sharp rally in March and April; households and firms liquidated longer-term deposits to buy equities, " said Anderson.

Finance minister Jin Renqing said the government had decided to look into the issue in the light of a booming economy.