SHANGHAI, Sept.5 (CBI China) -- China's top legislature passed the Circular Economy Promotion Law of the People's Republic of China on August 29th during the 11th National People's Congress (NPC). The law aims to boost the recycling economy and make sustainable development possible through a series of financial and tax policies. China's President Hu Jintao signed the act into law and it will take effect on January 1st, 2009.

    Under the law, the Central Government will supervise high-energy and water consumption enterprises. Article 16 states the government will attach a growing importance to monitor enterprises with annual energy and water consumption above national requirements, including steel, non-ferrous metal, coal, power generation, oil refining, chemical, construction, paper making and printing industries. The government will now make stricter energy and water consumption standards for major enterprises, and closely monitor them.

    Market players believe implementation of the law will have a limited impact on the scrap copper market in the short term, but the law will compel the government to implement detailed regulations on scrap copper market and tackle the chief issue of tax reform for the waste materials market.

    Tax administration for waste materials in Nanhai city, Guangdong province have been effectively implemented, but it is easy to find in other markets goods which have not paid the value added tax (VAT). The Circular Economy Promotion Law will require the government to impose VAT on all enterprises dealing with waste materials before the end of 2008. Some market players feel smallmedium scrap copper traders will go bankrupt if the policy is enacted, as profits for the traders have been low since the beginning of 2008. The proportion of scrap copper excluding VAT and scrap including VAT is now 6:4 in the market, and downstream producer costs will increase significantly if all scrap copper enterprises are required to pay the VAT.

    CBI believes implementation of Circular Economy Promotion Law is indicative of the Chinese Government's determination to supervise and monitor high-energy and water consumption enterprises, as well as waste materials markets. Strengthening reform of taxation of waste materials is a key step in promoting regulation of waste materials markets, but the Central Government will implement the new policies gradually and in full view of actual market conditions. Enterprises engaged in recycling waster-materials with sale revenue above RMB 1.8 million/year will have VAT assessed before the end of 2008 and will not require all scrap copper enterprises to pay for VAT immediately.