Following our articles from earlier this week and last, we wanted to examine the issue of China’s export tax rebates in greater detail. A recent Reuter’s article mentions that China’s Iron and Steel Association CISA has called for export tax rebates to be increased. China should adopt more generous export tax rebates for steel products to bolster the industry, where losses are worsening due to overproduction and sluggish domestic demand, said Mr Luo Bingsheng CISA’s deputy head. He went on to blame production increases at small steel mills for worsening an oversupply situation, China is estimated to have 100 million tons of excess production capacity, triggering a sharp fall in prices.
According to the article, non ferrous producers are also calling for the full 17% VAT tax bill to be refundable for exports as it is in other countries. Currently Chinese producers can only reclaim a portion of this tax although the proportion has increased in recent months. In Europe, producers have never charged VAT on exports, anymore than US steel producers are required to charge any consumption taxes on goods they export from the country.
The USITC voted unanimously last week to approve an anti dumping probe on steel pipe products, we understand largely on the basis of this VAT rebate. They may well be successful in achieving a ruling in their favor but we can’t help feeling the emphasis is wrong. VAT rebates are an automatic right in most countries so it seems senseless to use this as the basis in cases against China. A far better, but politically less savory, case should be brought on the grounds of currency manipulation as we have said before.
Nevertheless the CISA call for greater VAT rebates could not have come at a worse time for Chinese producers facing anti dumping cases or a better time for the AISI and US steel industry forces raised against them. It will add fuel to the fire and do little to help stimulate China’s collapsing steel exports. The fact is China, like steel producers the world over, will have to wait for demand to gradually return. There is no silver bullet there to solve the problem of over production. In fact the CISA would be better advised to get its house in order and take active steps to close down less efficient or otherwise consolidate the country’s fragmented and purely disciplined steel sector.