Beijing to end export rebates on 406 items

PUBLISHED : Thursday, 24 June, 2010, 12:00am
UPDATED : Thursday, 24 June, 2010, 12:00am

The mainland has scrapped export rebates on hundreds of products for the first time since the global financial crisis, a sign the worst may be over for exporters.

The Ministry of Finance and State Administration of Taxation said rebates would end from July 15 on 406 items ranging from steel to corn starch. Export rebates were introduced in September 2008 to help an export industry being battered by the global economic recession.

While economic conditions have improved enough for Beijing to cancel the refunds, a new round of yuan appreciation will put further pressure on exporters.

Mei Yuxin, a researcher at the International Economic Co-operation Institute of the Ministry of Commerce, said it was a logical move.

'Exports have been increasing for seven months,' Mei said.

The rebates will no longer apply to exports including key steel products, semi-finished nonferrous metal, silver powder, ethanol, corn starch, pesticides, pharmaceuticals, chemicals, plastics, rubber and glass. These products currently enjoy rebates of 5 per cent to 17 per cent.

Most are primary or energy-intensive products and underscore increasing efforts to eliminate waste and polluting industries and promote higher value-added industries.

As many as 48 items in the steel industry will see the removal of 9 per cent tax rebates, including hot-rolled steel coil, sections, narrow cold-rolled coil and hot-dipped galvanised coil.

The move, widely expected by the market, has steel enterprises nervous, because hot-rolled products made up 25 per cent of total steel exports in the first four months.

As expected, almost all kinds of hot-rolled products lost their rebates, while only one cold-rolled product was included. Hot-roll requires little technological skills to make compared with cold-roll, which boasts higher value-added production.

Qi Xiangdong, chief analyst at the China Iron and Steel Association, said: 'The direct impact on the big-scale steel companies is bigger than on the small ones. Hot-rolled coil is the most affected product. Only big-scale enterprises have the capacity to manufacture it.'

However, many smaller steel firms striving for tiny profit margins will not be left unaffected. As the cut will lead to a reduction in steel exports, these enterprises will see fewer investment opportunities allowing them to expand.

The domestic market is already oversupplied, and competition might intensify if small enterprises have to sell to domestic buyers.

China's steel exporters have been subject to a series of anti-dumping measures by the United States, which cited subsidies in the form of low-cost loans, cheap land and export tax incentives.

'China wants to curb the export of steel to ease trade friction,' Qi said.

Xu Xiangchun, chief analyst at Mysteel, an industry consultancy in Shanghai, said another reason the subsidies were cut was to save energy. 'Industries on the list are energy-intensive,' he said.