Iron ore being unloaded at a port in Rizhao, Shandong province. Iron ore demand in China, the world's largest buyer of the steel-making raw material, is expected to remain weak as steel demand contracts. [Photo / IC]

Move props up domestic operations in face of plunging global ore prices

China announced on Wednesday a major reduction of taxes on iron ore to help the struggling metals industry and ensure the security of national resources.

The weekly State Council executive meeting, presided over by Premier Li Keqiang, decided to reduce the resource tax on iron ore by 60 percent, effective May 1.

The move aims to improve the operations of mining companies, promote structural adjustments, support the coordinated development and upgrading of related industries, and safeguard the security of ore supplies, according to a news release issued after the meeting.

It came on the same day that Shanghai Securities News said on its website that the government would soon announce policies to support the iron ore mining sector. Although the report did not give clear sources or other details, domestic stocks related to iron ore mining and steel production surged on speculation.

China, the world's biggest steel producer, has been heavily dependent on low-cost foreign ore. According to the China Iron and Steel Association, the country's imports last year rose 9.7 percentage points to 78.5 percent of total ore.

Many Chinese mines have been forced to close as global iron ore prices have fallen about 60 percent in the past year.

Li Xinchuang, deputy secretary-general of the China Iron and Steel Association, said the current tax rate on Chinese iron ore operations is 30 percent, much higher than the burden abroad, which mainly ranges from 4 or 5 percent to 10 percent.

"It's very unreasonable, given the collapsed prices. The new tax rate will greatly reduce the burden on the sector," he said. Still, he said, in light of the complex business environment, mining enterprises cannot depend on policies alone but must lower their costs and upgrade their technology to make themselves more competitive.

Xu Xiangchun, a senior analyst with Mysteel, a Shanghai-based steel information consultancy, said the challenges in the sector are very tough, with many large mining companies suffering losses or even closing.

"So the new tax rate has great significance, not only in terms of stabilizing the sector but also in safeguarding national resource security," Xu said.

The executive meeting also stressed the need to make structural tax reductions and cut fees across the board to further lighten the burden on enterprises, particularly small and micro businesses, to encourage innovation.

It was decided that half a year would be spent reviewing administrative charges that enterprises are required to pay the government, as well as the compulsory service charges and fees charged by industry associations and chambers of commerce nationwide.

The role of government would be reviewed, and rules and mechanisms would be set up to regulate charges and cancel unreasonable ones, it was decided.