China has decided to reinstate a value-added tax on high-end steel products for export from July 1, ending preferential treatment enjoyed by steel makers since 1998.

The Ministry of Finance and the State Administration of Taxation said in a circular yesterday that all high-end steel products made for processing and sale overseas will be subject to the 17 per cent value-added tax from Friday.

Putting a stop to favoured conditions is intended to curb the export of products including steel that consume large amounts of energy and pollute the environment, the circular stated.

The export of such products has intensified the pressure on resources including coal, electricity, oil and transportation, and further damaged the environment, the statement continued.

The latest policy shift follows a series of moves to cool the booming industry, including cutting export tax rebates on steel products from 13 per cent to 11 per cent, and limiting the number of iron ore importers.

Economists note the government wants to control steel demand from both home and abroad to prevent a resurgence of overheated investment in the steel sector and excessive production capacity.

The government has since mid-2003 taken a series of measures including an interest rate hike to cool investment in sectors such as steel and cement production.

Because of the macro-control measures, both investment and demand in the steel sector have been slowed down.

Earlier figures from the National Bureau of Statistics indicate fixed asset investment in the sector fell by 1.4 per cent year-on-year to 33.22 billion yuan (US$4 billion) during the first quarter. However, investment in the steel sector rose by 106.4 per cent year-on-year during the same period of last year.

Niu Li, a senior economist at the State Information Centre, said the policies were not only intended to save energy and resources, but also to ensure the sustainable development of the steel sector.

Saving energy is one of the top priorities for producers if the steel sector is to develop in future, Niu said.

China has been the world's top steel producer since 1996. Output rose by 22.7 per cent to 273 million tons last year, accounting for a quarter of the world's total.

Economists forecast steel output will reach 300 million tons this year.

(China Daily June 29, 2005)