China’s Oil Teapots Rocked by Tax Rules That Threaten Closures

China’s smaller, independent oil refineries are getting squeezed by a stricter tax regime, which could accelerate shutdowns in the embattled sector.

The refiners, dubbed teapots, are in the crosshairs of the government’s drive to root out overcapacity. Local authorities, including in the industry’s hub of Shandong province, are targeting tax breaks on one of their cheaper feedstocks, fuel oil, which has hiked costs and forced teapots to cut run rates.

For some firms, the situation could become unrecoverable as China’s oil industry grapples with falling demand for products like gasoline due to a slowing economy and the electrification of ...