New tax for iron and steel industry needed

Some experts suggest that China should introduce an environmental protection tax to regulate and control the overcapacity of iron and steel instead of using pure administrative means, the Oriental Morning Post reported on Thursday.

Tax and price should be used to affect the supply and demand of the market and to encourage the automatic exit of companies using outdated equipment from the industry, they said.

China's iron and steel industry has seen comprehensive losses this year. However, its production capacity has reduced.

One of the important reasons for this phenomenon is that there is little in the industry in the way of such factors as energy saving and environmental protection in companies that use outdated equipment. Lower costs and higher profits encourage these companies to continue manufacturing, the newspaper reported.

The central government may take advantage of the market to reduce the profits and taxes to the local government from outdated production methods, said Xue Zhimin, vice-director of the Government Research Office of Hebei province.

China's control policies over this industry have always been overriding since the year 2000. Eliminations occurred according to the volume size of iron-smelting furnaces, said Song Jijun, vice-director of Hebei Metallurgical Industry Association, referring to economic pressures on large, unprofitable units.

The administrative controls were difficult to enforce because of, for example, constraints on verification of equipment. On the other hand, companies tended to purchase big units in order to achieve high output, he said. That worked during periods of high demand but caused headaches when demand was low.