Preparatory work completed for China's steel export rebate reduction

SteelOrbis Shanghai On February 15, an unnamed inside government official confirmed the rumors of an imminent reduction in China's steel export rebate. According to the official, a major adjustment of the steel export rebate has finally been decided upon: the drop margin is said to be significant, while the issue date is expected to come soon. Furthermore, it is most likely that the rebate reduction will be accompanied by an increase in the export tax on semi finished steel products. The rebate adjustment may be classified into two parts: A) the current rebate of eight percent is to be cancelled thoroughly; B) the current rebate of 11 percent will drop to five or eight percent. The former group mainly includes long, wire rod and hot rolled steel products, while the latter mainly refers to high-end cold rolled and galvanized products. Influenced by the complaints of the EU and the US (in particular, the recent initiation of legal action by the US at the WTO) against Chinese subsidies, the Chinese government is expected to opt for the five percent rebate for group B. Since late 2006, China's National Development and Reform Commission (NDRC) has been researching the issue of steel export policy adjustment. The research work focused on whether there was a genuine need to decrease the current export rebate, and if so, what margin would be appropriate and what date would be suitable for implementation. China's Ministry of Commerce, the China Iron and Steel Association (CISA), along with many senior government officials and interested experts, took part in the series of discussions. So far, all the key decisions as regards the export policy adjustment have been made, though some details may perhaps be clarified at the last minute. In any case, it seems likely that the tax rates for semis exports will have to be adjusted to a relatively high level. By exerting greater control over steel exports through the export tax and rebate changes, China will move towards its goal of completely canceling the export rebate, even though it is a standard measure adopted by countries all over the world in order to encourage national exports. In 2006, China exported over 43 million tons of steel products, representing a year-on-year growth rate of 109 percent. Of this figure, 7.4 million tons and 5.5 million tons were exported to the EU (25 countries) and US market respectively, with corresponding year-on-year growth rates of 443 and 130 percent. Due to the incredible growth rate indicated for the EU, it has become the biggest export destination for China's steel products. As a result, the EU sent representatives to China with a view to resolving the problems posed by this remarkable growth in steel exports. As part of the positive agreement reached with the Chinese officials, the EU has promised not to initiate anti-duping procedures against China for the time being. This indicates that the EU has confidence in China's resolve and ability to control its steel exports in 2007. Due to complicated domestic factors and global market reasons, China's steel exports experienced unprecedented high-speed growth in 2006. China's top leaders have been disappointed and frustrated by their inability to exert control over steel exports. However, the new planned reduction to the steel export rebate is expected to achieve the desired effect.