China tax cut to boost trade
Trade tensions with Europe, US are growing
CHINA said yesterday that it would cut some import and export taxes next year to boost its ailing trade sector, raising concerns that cheaper Chinese products could exacerbate a global oversupply of basic materials such as steel and chemicals.
Trade tensions are already growing with Europe and the US, which have accused China of dumping steel on world markets. Industry experts said the tax breaks on other types of steel, iron and other products could aggravate supply gluts.
Deflation trap
The intense pressure facing Chinese manufacturers was clear in data early in the day, which prompted worries that the world’s second-largest economy could be falling into a Japan-style deflation trap.
Companies slashed prices for the 45th month in a row in November as they struggled to sell their goods, with the producer price index (PPI) down 5.9 percent from a year earlier, the fastest since the global financial crisis.
The weak price report came on the heels of trade data on Tuesday, which showed China’s exports fell for the fifth consecutive month in November, while imports contracted for the 13th month straight, casting doubt on hopes that the cooling economy would stabilise in the fourth quarter.
Nonetheless, basic material exports were relatively strong, as weak domestic demand spurs firms to redirect cargoes abroad.
“We think it’s a longer-term dynamic playing out: China exporting its surplus to the Western world,” said ANZ analyst Daniel Hynes, referring to a 15 percent surge in unwrought aluminium and product exports to 450 000 tons in November.
China’s oil refiners shipped a record amount of fuel products in the first 11 months of the year, aluminium processors sold their second-highest tonnage ever and steelmakers increased exports by 22 percent to a new record.
The export tax cuts would apply to steel billet (bars) and pig iron, lowering them to 20 percent and 10 percent, respectively, from the current 25 percent effective from January 1, the Ministry of Finance said yesterday. Export tariffs on phosphoric acid and ammonia will be eliminated. Taxes also would be adjusted to encourage imports of advanced equipment, energy raw materials, and some components.
Concerns
While higher equipment and raw material imports could be a boon for China’s trading partners and some Western firms, the policy move raised concerns that China hopes to ease pressure on its embattled heavy industrial sector by sending more excess production abroad. The price deflation in China’s industrial sector is in part a reflection of slumping global commodity prices since 2011, but also highlights weaker demand for basic construction materials at home.
And with a large inventory of unsold homes discouraging new construction and investment, much of the steel, cement and other materials created to serve China’s housing boom in the 2000s now has nowhere to go. – Reuters