[SMM Hot Topic] Three-Year Review of Forging or Purchasing Customs Clearance Documents from Other Import and Export Firms: Where Is the Market Headed After the Ban Takes Effect?  --Part 2

• III. How Will the Current Ban on Forged or Purchased Documents Affect Exports?

On July 7, 2025, the State Taxation Administration issued the "Announcement on Optimizing Enterprise Income Tax Prepayment Declarations (No. 17 of 2025)," effective October 1, 2025.
Article 7 explicitly states that enterprises acting as agents, including through market procurement trade or comprehensive foreign trade services, must simultaneously report basic information and export value of the actual entrusted exporter during prepayment declarations. Failure to accurately report this information will result in the enterprise being treated as operating independently, liable for enterprise income tax on the corresponding export value. The actual entrusted exporter refers to the actual production or sales unit of the exported goods.
This new rule aims to integrate the "customs-tax-foreign exchange" three-dimensional supervision system. If agent export enterprises fail to accurately report actual entrusting party information, they will face a 25% enterprise income tax on the full export value, retroactive to January business. This caused turmoil in the steel trade circle, but past unresolved inspections and the lengthy window until implementation meant the practice did not disappear. Many traders engaged in such activities accelerated shipments from early August, stimulating a rebound in port departures from the bottom in early August, maintaining high levels.

Figure 3: SMM Steel Departures from Domestic Main Ports (32 Ports)

The issue escalated on August 22, when news spread in export circles about an inspection of 200,000 mt of steel exported using forged or purchased documents. According to SMM, inspections at Fangchenggang Port began on August 18, though news emerged later.
SMM shipping data showed weekly departures at Fangchenggang Port were only 17,300 mt on August 22, nearly an annual low. However, northern ports saw no further action, with most maintaining normal departure rhythms except for some weather-related delays in cargo pick-up.

Figure 4: SMM Steel Departure Data (Fangchenggang Port)

According to SMM, Fangchenggang customs inspections were short-lived. Some export shipments were regularized through tax payments and fines, completing declaration procedures, and departures rebounded for two consecutive weeks after the low. However, this operation, combined with the narrowing window for Document No. 17 and notices from port tax authorities—such as Lianyungang’s tax bureau issuing notices in late July to export enterprises for undeclared taxes on exports from January to June, demanding rectification—posed risks.
These risks have temporarily halted traders engaged in such practices. SMM understands that dedicated exporters have largely stopped accepting orders for October and beyond, with some pausing operations temporarily. Those previously involved are now actively pursuing tax-included orders for other products, such as improved orders for steel billet and coated products.
If tax-free exports face strict crackdowns after the National Day holiday, how will tax-included export orders perform? Let’s examine global HRC price comparisons.

Figure 5: 2025 Global HRC Prices in Major Regions

This year, China’s export FOB prices have generally been at the low end among major global export or import markets, with the price spread against the CIS mostly within (-30, 30), often lower than CIS export FOB. Positive spreads have been maintained against Japan’s export FOB and Southeast Asia’s import CFR, giving China a competitive edge. This advantage has kept steel exports historically high despite increasing anti-dumping sanctions, with cumulative exports reaching 67.983 million mt from January to July, up 11.4% YoY. (For the relationship between price spreads and export volume, see SMM analysis: https://open.work.weixin.qq.com/wwopen/mpnews?mixuin=qiwwDgAABwDixH_qAAAUAA&mfid=WW0308-mImINwAABwDohbxiND8pCglAYd398&idx=0&sn=b62b05714967b1dd85037e42fa3c0be0&version=5.0.0.8002&platform=win) A reversal occurred in July, with domestic rumors of "anti-involution" driving steel prices up for a month, while overseas prices stabilized during the off-season, sharply widening the domestic-overseas price spread. By late July, the spread against the CIS exceeded the -30 threshold, the spread against Japan narrowed from over 60 to single digits, and the spread against Southeast Asia’s import CFR slightly narrowed.

Figure 6: 2025 Price Spread Between China’s Export FOB and Major Markets

The narrowing spread significantly weakened domestic export orders. SMM export order data showed the lowest July orders were more than halved compared to June’s peak, with overall July performance sluggish. However, as domestic prices adjusted and overseas prices steadily recovered, export spreads improved, returning to normal ranges. As of September 5, the spread between CIS export FOB and China’s export FOB was -3, between Southeast Asia import CFR and China’s export FOB was 19, and between Japan export FOB and China’s export FOB was 27.

Figure 7: SMM Weekly Steel Export Order Data

• IV. Disruptions from Forged or Purchased Documents and Price Spreads Subside, Year-End Steel Exports Expected to Rebound from the Bottom

Looking ahead, as overseas demand enters the peak season, overseas prices are expected to rise further, restoring normal domestic-overseas price spreads. Although tax-free orders may decrease, tax-included prices remain competitive, and orders should steadily return to normal levels. As SMM currently observes, some state-owned steel mills have seen improved orders due to reduced price disruptions from such practices, while traders avoiding them are actively seeking other orders to compensate.

Figure 8: Steel Exports and Forecast Data, 2022-2025

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