China’s Tightened Custom Checks Create Panic among Chinese Steel Exporters, Results in Delayed Shipments

Following this crackdown, China’s customs department announced a much stricter customs system in order to regulate the import-export of mineral commodities. This new system will come into effect from 1 Aug’18 and has created widespread concerns amongst the country’s steel and related products exporters.

According to the market sources, some exporters have in fact either delayed or cancelled their shipments fearing their tactics to game the tax system may now be exposed. Among those that have cancelled or delayed cargoes are Chinese exporters that have been taking advantage of Beijing’s generous tax rebate system on value-added steel.

China has been giving tax rebates to the exporters selling value-added steel, allowing them to undercut competitors. But the system has been abused by exporters who have claimed rebates of 5% to 13% even for tiny additions of elements such as chromium, while some are alleged to have mislabelled shipments to pass them off as alloy steel.

As informed by the market participants, although the volume of cancelled or delayed shipments is relatively small as of now, the pace of cancellations may quicken when customs authorities introduce new rules from Aug. 1 that will require shippers to answer more than 100 questions on a shipment’s declaration form, up from 40 questions now.

Exports of products such as strips, square bar and wire rods are affected the most during the recently tightened checks from customs. These products account for most of the Chinese steel heading overseas. The extra paperwork has sparked panic among the exporters dispatching above products in the foreign markets and are likely to affect a lot of people, especially small trading firms who used the exports loophole to avoid tax and foreign exchange controls.

As the major destination of steel and related products export for China is usually South East Asian countries, exporters from other countries such as Russia are taking advantage of this situation of delayed or cancelled shipments from China and are targeting their exports to SE Asian countries in an effort to increase their market share amid raging US-China trade war.