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New China import tax might take the heat out of coal

On September 3, Beijing announced a 3% tax on coal imports with low calorific value. Some market analysts are concerned that the tax might have a negative impact on Indonesian exports of thermal coal as the levy could remove any price advantages. Between January and July this year, Indonesia accounted for 97% of China’s lignite imports.

The move would reinforce beliefs that China’s appetite for imported coal is waning. Over the past three decades, China has enjoyed an investment-driven economic boom averaging around 10%, fuelled by commodities. But China’s growth has slowed over the past couple of years and in 2012 GDP growth eased to 7.8%. Indeed, analysts have been gradually revising their growth projections for 2013 below 7.5%.

"The move from an investment-driven economy to one based on domestic consumption implies that China won’t be looking to gobble commodities like it did in the past," says Ferry Wong, head of equity research at Citi in Indonesia. "Indonesian exporters are already feeling the pain as margins are being squeezed, especially smaller producers who find it much more costly to mine."

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