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Domestic steel mills face uphill battle against Taiwanese giant Formosa

VietNamNet Bridge – Formosa, the Taiwanese steel manufacturer, has advantages over domestic rivals thanks to investment incentives offered by the government.

VietNamNet Bridge – Formosa, the Taiwanese steel manufacturer, has advantages over domestic rivals thanks to investment incentives offered by the government.

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The steel giant has received more generous incentives than any similar company in the past. It pays a corporate income tax rate of 10 percent, while domestic manufacturers are taxed 22 percent.

For the first four years of operation, it has exempt from taxes and for the next nine years, it has a tax reduction of 50 percent.

The steel investor has also been allowed to lease 3,318 hectares of land at preferential rent for 70 consecutive years, which the local authorities have promised will not be taken back for any reason.

In order to encourage the investor to inject a huge amount of capital into the project, the local authorities rushed to move local households for site clearance and give Formosa “clean land”.

The Taiwanese manufacturer has also repeatedly asked for more and more preferential treatment. It has proposed setting up a special economic zone of its own (the proposal was rejected) and after the May riots following China’s illegal deployment of its oil rig in the East Sea, Formosa asked for more preferences.

Most recently, it asked for permission to set up a fleet of its own to be in charge of carrying steel.

As Vietnam has given it attractive investment incentives in exchange for its huge investment project, analysts warn that the tax incentives, which lead to a loss in state revenue, are only part of the problem. Vietnam may eventually have a bigger price to pay.

Threat to local steel industry?

Dr. Le Dang Doanh, a renowned economist, said the government should try to foresee the economic benefits Vietnam receives for investment incentives it offers to foreign investors.

The benefits Vietnam can expect from Formosa are “unclear”, he said.

The company, which has strong financial capability and is empowered by investment incentives, has put pressure on Vietnamese steel manufacturers.

Formosa has said that it would export the majority of its products made in Vietnam. However, analysts doubt that the investor will fulfill its commitments.

China, the region’s biggest consumption market, is now frozen. Therefore, Formosa may try to boost sales in Vietnam.

If so, domestic manufacturers, which are struggling because of low domestic demand and the flood of low-quality Chinese imports, would fall into an even worse situation.

And they do not have much time left to prepare for competition with Formosa, as the company’s two blast furnaces are expected to become operational by the end of this year in the first phase of its project.

By that time, the company will be able to make 7.1 million tons of finished steel, including three tons to be consumed domestically, mostly in Hanoi and HCM City.

In the future, when the entire project is running at full capacity, Formosa is expected to manufacture 22.5 million tons of steel a year.

NCDT

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