By Xin Zhiming (China Daily)
Updated: 2008-06-05 07:33

China is set to scrap the tax rebates on exports of vegetable oils from next Friday, which analysts said would help drive down domestic prices, although the effect would not be very "big".

The move applies to 36 varieties of vegetable oil products, including soy, peanut and sunflower oil, according to a Ministry of Finance statement on its website. It is aimed at dampening exports to ensure more domestic supplies and steady prices, analysts said.

"The scrapping of the tax rebates would have a downward pressure on domestic prices of vegetable oils," said Shen Chengnian, deputy general manager of Anhui Jincui Cooking Oil Trade Ltd Co.

Agreed Chen Lina, analyst with Beijing Orient Agribusiness Consulting Ltd: "The move will encourage exporters to shift to domestic sales and therefore help increase domestic supply."

But Shen said since the export volume of China's vegetable oils is quite limited, the policy would not have a very big impact on the market.

Last year, China exported 166,000 tons of vegetable oils, accounting for a tiny proportion of the country's total consumption of about 22.5 million tons. The exports are mainly non-genetically-altered soy oil and rapeseed oil that go to South Korea and Japan, said Shen.

Meanwhile, the domestic production falls well short of the domestic consumption, 60 percent of which is met by imports, which means domestic prices are to a large extent subject to the influence of international prices.

Moreover, China relies heavily on soybean imports to produce soy oil. Last year, China imported 30.8 million tons of soybean, about twice its domestic production.

Because of the decreasing stockpile and increasing demand, international prices of vegetable oils have been continuously rising since last year. Price of soybean has also been rising since last year, affecting domestic soybean and soy oil prices.

The country has taken a series of measures to stabilize domestic prices of cooking oil. Last July, it reduced tax rebates on export of some vegetable oils from 13 percent to 5 percent and last May it announced to temporarily cut import taxes by almost half.

Domestic prices of vegetable oils have been on the decline recently. Rapeseed and soy oil prices, for example, had fallen for 11 consecutive weeks by the end of May.

China is taking all-round measures to contain prices as inflation has been hovering around a 12-year high in recent months. The consumer price index, the key gauge of inflation, rose 8.5 percent in April, slightly lower than the 12-year peak of 8.7 percent in February. Economists expect the May inflation to fall to about 8 percent.