China arrests 245 people on illegal steel scrap exports

China has arrested 245 people for allegedly being members of smuggling gangs that illegally exported steel scrap worth 4.8bn yuan ($750mn) to southeast Asian countries.

Security personnel began making arrests yesterday morning across China after customs officials observed a sharp increase in steel scrap exports declared at low prices to avoid paying the full 40pc export tax, China's General Administration of Customs (GAC) said today.

A preliminary investigation found smuggling gangs headed by an unnamed Chinese company and a Thai company exported around 2.41mn t of steel scrap to Vietnam, Thailand, Singapore, Malaysia and Indonesia. Around 65 gangs were broken up with arrests and raids conducted in Tianjin, Hebei, Shanghai, Jiangsu, Zhejiang, Hunan, Fujian, Guangdong, Guangxi and Hainan provinces.

The arrests quieted export trade for billet and wire rod because it raised fears of investigations into these products. In China, exporters can be tempted to declare billet as square bar to avoid a 15pc export tax and instead receive a 13pc tax rebate, and non-alloy wire rod declared as alloy wire rod would receive a 9pc rebate.

"Billet exports are likely to stop for a while, as no-one dares to quote and export when the investigation is continuing," a Tangshan exporter said.

Officials said the crackdown is part of China's environmental efforts. Steel scrap is the only raw material that can be substituted for iron ore in the steelmaking process, "and full use of iron and steel scrap is not only an inevitable requirement to break down resource bottlenecks and build resource-saving and an environment-friendly society, but also an important way to reduce carbon emissions and alleviate dependence on iron ore," the GAC said.

China's steel industry produced more than 800mn t of crude steel last year using more than 1bn t of iron ore imports, around 250mn t of 62pc Fe equivalent domestic iron ore and around 150mn t of steel scrap. China is reducing its iron ore mining on environmental concerns. Beijing said last year that a third of the country's iron ore mining leases would not be renewed, and this week shut down 226 non-coal mines this week including a number of iron ore mines.