China may scrap or cut some export tax rebate

SHANGHAI （Reuters） - China is drawing up plans to either scrap or reduce export tax rebates on some of the country's energy-intensive and high-polluting industries, a local paper reported on Monday, citing unidentified sources.

A move to scale back on export rebates would mark China's second such move since the outbreak of the global financial crisis in 2008 and be a double whammy for exporters, already facing the prospects of a rising yuan CNY=CFXS. The mounting pressures on exporters could accelerate their consolidation.

But on the other hand, analysts said the end of a tax kickback could have a bullish impact on prices of some commodities, such as steel, which have long suffered from overcapacity issues and deteriorating margins.

The National Development and Reform Commission, the Ministry of Finance and Ministry of Commerce are reviewing tax rebates on a list of goods in various sectors, including rubber, non-ferrous metals, steel and construction materials, and have not yet decided on the final tax reduction, said the Economic Information Daily, which is managed by the official Xinhua news agency.

"The overall reduction would not be drastic, but goods in the steel, building materials and additives sector will obviously see larger cuts on rebates compared to other industries," the paper quoted an unidentified source with knowledge of the process.

Steel traders told Reuters that the market is rife with speculation that the government may scrap an existing 9 percent rebate on some flat-steel products, a move which would greatly dent their price competitiveness in Asia.

"What we'll see is that there would be a strong spurt in exports over the coming weeks or months as producers rush to get their goods out before the new regulation kicks in," Zhu said.

"Also, I believe this would be the start of a series of export-rebate reforms as China aims to restructure its economy to reduce pollution and overcapacity."

The related government bodies have also already drafted strategic reviews on export duties for various commodities, including rare earth, iron and steel, petroleum, coal, nickel, molybdenum, tungsten, solar polysilicon and other raw materials.

But the government is still working on the finer details of the tax overhaul and has not yet issued a final document, as it needs to consider China's overall export performance this year and seek the views of several other ministries, the paper said.

China, the world's second-largest economy, last scrapped export-tax rebates on some exports in June, which was also part of larger efforts to ease trade tensions.