China’s announcement of a cut in its tax rebate for steel exports appears to be more a symbolic gesture than a real effort to rein back the tonnages being sold abroad. It will do little to threaten China’s position as a substantial net exporter of steel.
Indeed, in the short term the move may accelerate export despatches. This is because the lower tax rebate of 8 percent was effective from 15 September, but the previous 11 percent rate will continue to be available until 14 December for export contracts signed on or before 14 September. This will encourage early customs-clearance of tonnages already ordered for export.
A 3 percentage point cut in the tax rebate translates into very few dollars per tonne of steel. Chinese exporters will need to raise their prices for hot rolled coil by around $US10/15 per tonne to maintain their profit margins.
Moreover, the cut had been widely signalled in advance, enabling export traders to adjust their offer prices.
China has gone from being a net importer of some 13 million tonnes in 2004 to a roughly balanced position in 2005, and to being a substantial net exporter this year. MEPS’ projection is that China’s net exports in 2006 could be around 18 million tonnes.
Thus, within three years China’s trade balance has seen a turnaround amounting to more than 30 million tonnes – equivalent to the total steel production of a country like Italy or Taiwan. A marginal cut in tax rebates – even if it followed by another 3 percentage point cut, as is rumoured – is not going to seriously erode the country’s export business. Perhaps of more concern are the unfair trade cases that some of its exports are provoking.
Source and full story MEPS