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Environmental tax to end era of cheap Chinese minerals

By YOKE WONG
Published: Friday, 30 June 2017
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As the wave of anti-pollution controls continues across China and the central government in Beijing is pressing ahead with more environmental reforms, many warn that stricter regulation will push minerals production cost higher, ending the era of cheap Chinese products.
The new environmental tax law to be implemented in January 2018 is set to raise industrial minerals’ production cost in China, as the government is tightening regulation on industrial emissions.

The Chinese government passed the "environmental protection tax law" on 25 December 2016 and the new regulation will be in placed by 1 January 2018. On 26 June, China’s state administration of taxation (SAT) published the draft bill listing a series of guidelines. The authority is calling for market feedback before a 26 July deadline.

Unlike previous environmental legislation, Beijing is committed to enforce this new law as Chinese president, Xi Jinping, has declared cleaning up the environment as the top priority for the country. Furthermore, the wave of anti-pollution crackdown, which started in mid-2016 in Shanxi and Henan, has since spread to other regions including Liaoning, Guizhou, Hunan, Shandong and Xinjiang.

As a result of the strict environmental inspections, many minerals productions were shut down over different periods: calcined bauxite, brown and white fused alumina, magnesia, fluorspar, barytes, antimony trioxide and calcium carbonate were all affected, while graphite is also expected to be impacted over the coming weeks.

China is the biggest producer of industrial minerals globally and the production stoppages caused severe supply disruptions worldwide. Even many downstream chemicals industries in China have been hit: hydrofluoric acid and aluminium trifluoride production were slashed, while restrictions on chromium chemicals producers have dampened China’s demand for chromite.

This recent trend was in stark contrast to the past decades where many minerals producers have been mining and producing with little concern for the environmental impact. Lack of regulation on waste management and emissions meant that many Chinese producers were able to offer low-cost minerals for export, as they did not have to invest in expensive, modern equipment for environmentally-friendly waste treatment and disposal.

However, the new stance from Beijing signified that the era of low-cost minerals production could be over as the government is keen on upgrading the manufacturing industry and accelerating green development in China.

Despite the anti-pollution measures across China show no sign of receding, some market participants believed the clampdown would be temporary, production would resume in the short-term and prices would fall as a result of operations returning to normal.
"Lots of customers believe prices will go down and that this is a short-term problem in China. My gut feeling is they will not go down and, if they do, it will be by a very small amount," one Europe-based minerals distributor told IM.

"Xi Jinping, he’s not mucking about […] Normal rule doesn’t apply in China at the moment. The reality is, this is not a little blitz, this is a structural change," he said.

Implementation

Under the environmental law, all manufacturers must comply with the thresholds on emission and waste disposal and they will be taxed accordingly based on the volume of pollutants discharged.

This new law is set to limit the amount of emissions and waste generated from the manufacturing industry in China, since all forms of waste will be taxable from 2018 onward. It is hoped the measure will push companies to upgrade facilities and phase out polluting industries.

The draft regulations detailed a number of articles, which regulate and set guidelines for emissions and waste generation, storage and disposal.

Under the new rules on taxable solid waste, the volume of solid waste generated from production will be regulated based on a formula considering a number of criteria: the amount of waste created and its utilisation, treatment, storage and disposal.

In addition, daily average emissions of taxable pollutants must not exceed the set national and local government thresholds, while waste disposal permit holders cannot exceed their monthly discharge quota.

In order to collect the taxes, the SAT and the ministry of environmental protection will establish a common platform and system to monitor the pollution level in the country and its related tax revenue.

All producers must declare detailed information on the type and volume of emissions and waste, the method of disposal, storage and utilisation, and the supporting documents.

Although some welcomed this new law as it could potentially consolidate the minerals’ industry in China, others worried that stringent regulation could hike operation cost and place undue pressure on companies.

"The production cost will rise by a couple of hundreds renminbi, and it will eliminate some companies," said one fused alumina producer in Henan. "But the burden on enterprises will be huge."