China to address world’s overcapacity concerns by cutting export-tax rebate
Move seen discouraging vicious low-price competition and outsized industry expansions, and Chinese manufacturer profits could take a hit。
China will lower its tax rebates for exports of solar and lithium battery products, seeking to ease international concerns about overcapacity in its new-energy sector, which has led to rising trade tensions.
The move will increase the costs for manufacturers and export prices, discouraging vicious low-price competition and excessive expansion of the industry, according to insiders.
Effective December 1, the export-tax-rebate rate for 209 products, including some refined oil products, photovoltaics, batteries and certain non-metallic mineral products, will be reduced from 13 per cent to 9 per cent, according to a joint statement from the Ministry of Finance and State Taxation Administration on Friday.
The country will also cancel the tax rebate for 59 other goods, including aluminium and copper products, the statement said.
An executive with a Jiangsu-based manufacturer of solar panels said a key reason for the reductions is that the solar industry has become too “involuted”, or nei juan in Chinese – an anthropological term originally used to explain a process in which additional input cannot produce more output. Over the past year or so, the term has become synonymous with being locked in an endless cycle of self-defeating competition.
“Export prices are very low, which has led to intensified international trade frictions,” the executive said on condition of anonymity.
The reduction in tax rebates will help eliminate high-cost production capacity, improve the supply quality in the sector and ensure healthy competition, the executive said.
As it will make Chinese solar products more expensive in the international market and could lead to a decline in export volumes, the policy will add to the manufacturers’ financial pressure in the near term, but “it is beneficial to the entire industry from a structural perspective and in the medium and long term”, the executive added.
Export-tax rebates are important for countries to promote exports, offering additional room for exporters to profit.
“Tax rebates are the only source of profit for a lot of manufacturers,” said Xu Jianzhong, a manager at a logistics company, also based in Jiangsu, whose clients are mostly new-energy exporters. “If the tax rebates are reduced or even cancelled, they would be forced to stop producing.”
“It’s like taking care of your own kids before it’s too late and others do it for you” said Xu Jianzhong, logistics company manager
Most manufacturers in the solar supply chain are currently losing money, he added.
