The government is expected to continue its tight control over fertilizer industry in 2009, but may
loosen control over fertilizer imports and exports. The policy is subject to change in line with the
economic development trend.
Investment Policy: The government may stick to its restriction on fertilizer industry’s development,
except potassium industry. The recently unveiled massive economic investment plans do not
include new fertilizer projects. But the government continues to support backbone enterprises and
encourage merger and annexation. Against the backdrop of surplus market supply and declining
profit margin, fertilizer producers have little intention to expand their capacity by means of seeking
loans.
Tax Policy: As major fertilizer products are exempt from VAT, fertilizer producers are unaffected by
the reform of deduction of VAT through fixed asset investment in 2009. On the contrary, the raise
of VAT on coal and phosphorite from 13% to 17% is expected to add to the cost fertilizer
production.
Fertilizer Reserve Policy: Some experts suggest replacing commercial fertilizer reserve with state
reserve during the off-season of consumption and the state shoulders all the cost. BOABC
considers it unlikely to be adopted, because is against the reform of marketization.
Import & Export Policy: Fertilizer export tariff rate is slashed in 2009 and the stipulated off-season
of consumption is longer than before by two months (lower export tariff during the off-season). But
China’s fertilizer exports face an unfavorable international environment since international
fertilizer price keeps going south. It is likely that fertilizer export tariff may be cut further.
Price Policy: The government’s ceiling price for urea, DAP and MOP is no more than a shadow. By
the new export tariff, the base prices for exports of urea, DAP, MAP and TSP are RMB2,300/MT,
RMB4,000/MT, RMB3,700/mt and RMB3,100/MT respectively, far above the domestic price.
