Tuesday, October 23, 2012

Should China increase pesticide export rebate?

China's economy has already showed a slowdown and the GDP growth may be under 8% this year. It is reported that the government is planning to release economic stimulus measures including increasing export rebate as the country relies on export much. However, is it really necessary, according to CCM’s October issue of Crop Protection China News.

According to the General Administration of Customs, China's export value in Aug. this year increased by 2.7% year on year. The figure was up slightly from 1% in July, but it was still lower than expectation. Besides, due to the weaker demand from foreign customers, especially the ones from Europe, the situation may continue in the next few months this year.
As for pesticide, the export situation is a little better. China's pesticide export volume and value ran up in the first half of 2012. The total pesticide export volume and value in this period realized growth rates of 11% and 15% over H1 2011, reaching 473,200 tonnes and USD1.48 billion respectively (Crop Protection China News, 1217). However, the total export value in July 2012 reached USD176.94 billion, down 1.8% over June 2012. Some domestic analysts predicted that the export data in Aug. will not be optimistic for the export value in Aug. may continue to face a negative growth.
The growth rate of China's export value may be lower than the target of 10% set for this year, which will pose challenge to China's economy. Many companies expect the government to launch policies such as increasing export rebate to promote export.
Export rebate, a general and widely used financial strategy to encourage or adjust product export, has played an important role in the past years.
Based on the past experience, it is possible for the government to increase export rebate. Since 2008, Chinese government has raised the export rebate for seven times to promote export, including raising the export rebate for some pesticides in 2008 and 2009.
However, for pesticides, the government does not always raise export rebate. In fact, the government reduces export rebate for pesticide more than increasing export rebate in recent years.
On 15 Sept., 2006, China abolished the export rebate of 25 pesticides and intermediates.
On 1 Aug., 2008, China further reduced and abolished the export rebate of over 20 pesticides.
In late 2008, China raised the export rebate of some pesticides, aiming to boost pesticide export under the global economic depression.
In 2009, China raised the export rebate for some pesticides as the industry was still hit hard by the weak export.
On 15 July, 2010, China abolished export rebate again for some pesticides, including the most important pesticide in China, glyphosate (technical). 

Although some pesticides companies very look forward to the increase of export rebate, CCM thinks that there is no need for the government to do so.
First, with the increase of export rebate, domestic producers may reduce the export price, and their competitiveness in the market will be strengthened, but not too much. The global demand of pesticide more relies on the occurrence of the pests and disease and the price of crops, but is impacted less by the slight change of the pesticide price.
Second, China's pesticide price is very low at present and it has brought about anti-dumping accusation in overseas markets. Raising export rebate will only worsen trade friction.
Third, lower export rebate will pose pressure on domestic pesticide industry in the short term, but it is a piece of good news for the healthy development of domestic pesticide industry in the long term. Low industry threshold and lack of government administration had led to severe overcapacity and irrational market competition of pesticide in China, resulting in extremely low price and slim profit. As China aims to accelerate the industry integration and then forms a relatively rational market, maintaining the current export rebate or even reducing it is expected to be an inevitable measure.
According to the export rebate policies released by the government in recent years, most of the products that with export rebate reduced or abolished are high-energy consuming, high pollution or resource-intensive products. With export rebate reduced or abolished, some  companies with bad performance are expected to exit pesticide business, thus easing the serious overcapacity problem.
Although the export rebate raise for pesticides is not recommended, CCM thinks the government should adjust the export rebate policy of pesticide technical and pesticide formulation. At present, the export rebates for most pesticide technical is 9% and for pesticide formulation is 5%, which is unreasonable.
Domestic enterprises still more act as pesticide technical suppliers in the chain of international pesticide trade and the profit is slim. Meanwhile, the pollution caused by producing pesticide technical is very serious in China, compared with the production of pesticide formulation.
The government should adjust the export rebate policy of pesticide technical and pesticide formulation to better facilitate its own formulation brand products to enter international terminal market.
In 2011, China's pesticide formulation export volume exceeded the export volume of pesticides technical for the first time, a remarkable achievement for domestic pesticide industry. However, China's pesticide formulation still stays in a poor status in global market, and more policies are needed to promote it. 

Source: Crop Protection China News 1218

Content of Crop Protection China News 1218
Should China increase pesticide export rebate?
Hunan sets up pesticide business blacklist system
Selling highly toxic pesticide now faces arrest
Huayang Group's withdraw from Huayang Technology finally
China initiates anti-dumping investigation on imported pyridine
Shandong pesticide companies should make full use of capital market
Seed coating agent eyes bright prospect
Needs special agents for unmanned helicopter urgently in China
Some pesticide techncials firstly registered by domestic companies

Crop Protection China News, a monthly publication issued by CCM on 15th&31th of every month, offers timely update and close follow-up of China’s Crop Protection industry dynamics, analyzes market data and finds out factors influencing market development

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