Just 12 months after removing many of the VAT rebates on exports designed to discourage the export of lower value added products, China is looking to reinstate them starting December 1. As part of a wider program of tax changes reported by Reuters, the government is raising domestic VAT from 13 to 17% on all minerals, including iron ore, alumina and other metal ores. At the same time, it is reinstating rebates to promote exports of semi finished products like aluminum flat rolled and extruded products, and removing export taxes on hot rolled steel, sections and rods. The approach is designed to try and squeeze smaller producers out the market who can’t finance the cash flow impact of the higher VAT but support the larger more efficient producers by helping them boost exports in the face of a dramatic fall in domestic demand.
This will not be welcome news for producers in Europe and North America, already under pressure due to plunging demand and falling prices. With the US dollar so strong expect to see a marked increase in Chinese steel, aluminum and other semi finished metals in the US market from the New Year. Followed no doubt by the producers tried and trusted anti-dumping claims as they fight to keep prices up and competition out. Unfortunately with a democratic president and congress they may get a sympathetic ear, which will deprive US manufacturing of the stimulus of lower prices and reduce competitiveness relative to their peers around the world.