Exports subsidies news - hold your horses

I have been getting people ask me what I think of the announcement overnight, that China would end exports subsidies on aluminium. The feature image is one headline that particularly worries me.

In case you missed it, the US has announced that China has agreed to end subsidies for 7 industries, including textiles, some food items, specialty chemicals, medical products, hardware and “advanced materials and metals.”

Specifically, the announcement says that China will end subsidies going to almost 200 “demonstration bases - common service platforms.” This is a WTO term where a cluster of enterprises all in the same industry and all in the same location received subsidies geared to their success at making export sales.

There are a number of aspects of this story that concern me.

• The announcement comes from the US, not from China. In China this morning, the only news about this is from those who talk about the story being in the foreign press.
• The agreement relates specifically to demonstration bases, which by definition means a cluster of companies all in the same industry. Aluminium smelters don’t fit into that category. Downstream factories may or may not fit into that category, depending on where they are located.
• Subsidies can mean all sorts of things. A subsidy could be in the form of land tax relief, payroll tax deductions, electricity prices, beneficial freight rates to port, lower company tax rates, etc. The source document (I can send it to you if you want a copy) does not mention VAT refunds for exports. The people we spoke with in Beijing this morning understand that the agreement applies to subsidies of the nature I described just now, not VAT refunds.
• The 7 sectors that the US announcement refers to all appear to me to be “products”, and the list reads almost like a list of retail products. They don’t appear to be commodities or generic bundles of an item such as a container of aluminium extrusions or plate destined to be remelted in Mexico or elsewhere. It appears to me to refer to specialty aluminium items, or finished aluminium products, not semis. Perhaps garden furniture or alloy wheels.

I am not an international trade lawyer, so maybe I am missing something in the legal language of the document. To me, there does seem to be a gap or a missing link between the formal language of the announcement and the press releases and news stories that have appeared this morning. I would not be running headlines such as that in the feature image based on what I have read so far.

In any case, when dealing with China, what’s more important is what China really does, not what someone else says it will do. I would rather wait and see if there really is a change in the volume of exports before getting too excited.