By Li Zengxin
Updated: 2007-07-18 16:22

Several mining companies were hit today by the latest tax policy. China will raise the resource tax on lead and zinc mines, copper mines and tungsten mines as of August 1 this year, according to a State Administration of Taxation (SAT) announcement released recently.

According to the policy, there will be five new tax brackets for lead and zinc mines, ranging from 10 yuan (US$1.32) per ton of lead and zinc ore to 20 yuan per ton of lead and zinc ore, up roughly 400 percent from the previous resource tax on lead and zinc ore, established at the end of 1993, ranging from 2 yuan per ton to 4 yuan per ton.

The five new tax brackets for copper mines range from 5 yuan to 7 yuan for per ton of copper ore. Tungsten ore resource tax brackets will range from 7 yuan per ton to 9 yuan per ton.

As a long-term policy, analysts believe, public companies in such mining business will be heavily affected. The companies, including Western Ming, Shenzhen Hongda, Yunnan Chihong Zinc and Germanium and Xiamen Tungsten, down at least 2 percent today, will have to pay millions of yuan more for resources tax and be left with thinner profit margin. Their share prices are expected to drop, as most of them have since yesterday, said industrial experts.

The move, aiming to enhance efficiency in energy and resource consumption, also reflected the country's worry on an overheated economy, said economists. On the 91st Meeting of the Financial and Economic Committee of the National People's Congress ended yesterday, top economic regulators had a conclusion that the economy was turning from fast development to "overheating".

Although the economy has maintained rapid development this year, as reflected by good agricultural harvests for four years in a row, the first time since 1985, increased profitability of enterprises, resident income growth and a stable financial market, there are also problems.

The "overheating" signs included the excessive trade surplus and high growth rates in credit and investment. As a result, inflation pressure continued to mount in the first half from the increase of food and housing prices.

Commercial banks echoed the conclusion. In the recent reports issued by various commercial banks, they believe there might be one to two interest rate hikes in the coming months this year, and it is highly likely that the central bank raises the rate by the end of this month as the earliest.

Bank of China said the Ministry of Finance may cut or suspend tax on interest income to facilitate central bank's rate hike. According to the central bank, the full year consumer price index, a key indicator of inflation, is likely to reach 3.2 percent. On the other side, the current one-year term deposit rate is 3.06 percent.

Even without the 20 percent tax on interest income, the real interest rate is negative, said Bank of China. It means that the People's Bank of China needs to add up at least 18 base points to turn real interest rate into a positive figure, on top of a complete abandonment of interest rate tax by the Ministry of Finance, which was authorized to do so last month by the congress.

Bank of China also warned that the loan growth rate is too high, over-investment in fixed asset may bounce back and the economy is showing signs of "overheating".

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