Analysts say China’s independent refineries, called teapots, are facing tax crackdowns and industry integration.
They may also be affected by international tensions, with support for China to Moscow, European leaders threaten more sanctions on Chinese refineries Buy Russian oil.
The European Commission said on Wednesday it is considering listing some independent Chinese refineries in its 19th set of sanctions to invade Ukraine. Officials said they hope to introduce a new ban immediately after returning to the EU delegation to report on Friday in sanctions talks in Washington.
See also: Mexico says cars from China now face 50% tariffs.
Beijing imposes new tax system
However, the greater direct threat appears to be the new rules introduced this month to make profits. A new system is designed to target refined oil that is not paid as the industry struggles with weak fuel demand and overcapacity.
Refineries must pay excise tax on imported raw materials such as fuel and refined products produced, but evasion is common.
Industry estimates show that 30% of all gasoline and diesel refined petrol and diesel refineries are tax-free, according to calculations cited by national oil giant Sinopec and Chinese consulting firm GL Consulting.
The new rules implemented by the Ministry of Commerce will abolish paper ledgers and require refineries, gas stations and other operators to report purchases, sales and inventory online every month. The Chinese Cabinet Congress marked the change in February.
China-based GL Consulting said many independent refineries, especially smaller players, rely in part on the tax Dodges to cut profit margins under pressure from lower demand and will take the biggest hit.
Departments face “destructive competition”
Dongyuan Cao, associate law professor at the University of Science and Technology, said eliminating the competitive advantage that meets taxes will stimulate mergers and work with Beijing to reduce excessive capacity.
“The regulation is an important part of the broader “counter-revolutionary’ governance” that drives the refining sector that experiences ‘low-price competition’,” the CAO explained. In Chinese buzzword, it’s such a fierce competition that it becomes self-destructive.
China researcher Qi Mengdi wrote in Oil Business News that the purpose of the change is to collect more tax revenue and eliminate illegal petroleum products.
The Ministry of Commerce and the State Tax Administration did not immediately answer the questions.
Electric vehicles have reached fuel demand
China said in a report released in September that China had launched a campaign against tax evasion at the teapot center in Shandong Province, but when the inspections were over, the refineries returned to their bad habits.
Experts say the new rules will be more effective because it introduces systems rather than one-time activities.
The bet is the highest for the smallest teapot, the government has been slowly squeezing over the years and taxes are higher.
The teapot industry has less than half its capacity in the first half of the year due to a weak economy and rapid adoption of electric vehicles met fuel demand.
Li Xiang, a researcher at the National Petroleum Corporation CNPC, wrote in an article this month.
For refineries, two sales managers, one at a sophisticated product sales company, and another in a private refinery said that the margin for avoiding diesel was about $600 ($84.26) (7.45 barrels). They say the lift is about $1,900 to $2,000 for gasoline.
Chinese consulting firm JLC estimates that the profit earned by independent refineries from Shandong that are processing imported crude oil is an average of 177 yuan per ton ($24.86) per ton in the first half of 2025.
- Jim Pollard’s Extra Input and Editing by Reuters
See also:
China’s leaders are keen to end vicious price wars and curb deflation
Will China ultimately curb its huge overcapacity?
Chinese artificial intelligence companies, chip manufacturers form alliance to abandon foreign technology
China’s XI problem rarely warns of overinvestment in electric vehicles, AI – ft
China’s criticism of price war illuminates Xi Jinping’s “decline” power
China’s fierce electric vehicle price war has caused losses to car dealers
China’s deflation spiral overwhelms China when capacity bites
Creativity needed to stop China’s overcapacity: US official
