​China cuts its mining taxes

China has nearly halved its iron ore resources tax in a bid to prop up its failing industry, as well as removing taxes on coal and restrictions on some foreign investment.

According to Ernst & Young the country has reduced its tax levels by 40 per cent “to support the domestic industry against cheap and high quality imports”.

It comes as the nation’s iron ore sector faces potential annihilation.

Chinese mines are being hit even harder than Australian operations, and predictions forecast that internal Chinese output will shrink by 12 per cent this year.

New data Goldman Sachs stated that Chinese output fell 20 per cent to 311 million tonnes in 2014, and forecast it to continue this downwards trajectory to 271 million tonnes in 2015, and move south again next year.

E&Y data points to around three quarters of Chinese iron ore miners currently running on negative margins at existing price levels, with China Iron & Steel Association deputy secretary-general Li Xinchuang stating that the country's steel production would not reach the forecastone billion mark.

However the tax, which was implemented at the start of the month, equates to only about US$1 per tonne for local operators.

“For the majority of private mines it is simply not enough to make much of a difference,” Paul Gait, an analyst at Bernstein in London, told Bloomberg.

A combination of high cost and low grade meant it will “have no real economic role to play in the long term”.

On top of this reduction China’s Ministry of Finance is also contemplating slashing its Value Added Tax on coal from 17 per cent to 13 per cent to allow them to reduce internal coal prices, with McClosky estimates expecting that this will add around US$2 per tonne to operators’ wallet.

The nation has also removed restrictions on certain foreign investments, allowing investors into its copper, aluminium, lead, and zinc smelting, however it has still barred much foreign investment in tungsten, molybdenum, tin, and antimony.

Importantly, it has also retained its stranglehold on rare earths however it has removed export taxes on the metals.

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