UPDATE 2-China may use export taxes to cull own industries

Thu Jul 1, 2010 10:48am GMT

* Rebates on steel, base metals and products will end

* Metals production is for home consumption (Adds quote, details, background)

By Polly Yam

CHENGDU, China, July 1 (Reuters) - China, which helped its heavy industry survive the financial crisis by lowering barriers to exports, is now considering hitting the same exports with a tax to discourage rampant production that uses too much energy.

Fan Jianping, a top government analyst, said China is likely to impose export taxes on steel and base metals and their products in the next five years and classify them as industries serving domestic consumption. The goal would be to limit production capacity and to cut energy use and carbon emissions.

"Before 2015, the policy would be implemented," Fan, chief economist and director general of the Economic Forecasting Department of the State Information Center think tank, told a lead and zinc trade summit in Chengdu in Sichuan province.

That would be a U-turn in China's treatment of its swollen steel sector, by far the world's biggest, and its inefficient aluminium producers, who struggle to match leading firms such as Rio Tinto (RIO.AX: Quote) on production costs.

Those sectors got a huge leg-up in the first half of 2009 as the government encouraged steel consumption and directly bought base metals such as aluminium, as well as granting value-added tax rebates on exports.

Last week the government said it would cut and scrap some rebates on exports of steel and most base metals and semi-finished products made from those metals from July 15, lessening state help for the first time since the financial crisis triggered China's huge stimulus plan 18 months ago. [ID:nTOE65L08Z]   Continued...

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