China Is Adjusting Export VAT Rebates

Potential Implications for Global Value Chains China has recently announced a significant adjustment to its export value-added tax (VAT) rebate system — with a clearly defined timeline and potentially far-reaching implications. What may initially appear to be a sector-specific measure could evolve into a structural shift, particularly affecting chemical base materials and industrial intermediates.

What Is Changing?

Chinese tax authorities have announced that export VAT rebates for various product groups will be gradually reduced or fully abolished. Among the affected categories are:

• Photovoltaic products, for which export VAT rebates are expected to be fully removed from a defined cut-off date
  
• Battery-related products, where an initial reduction is expected to be followed by a complete phase-out

Of particular relevance is the fact that these measures do not only apply to finished products, but also to a wide range of chemical base materials and upstream intermediates used across multiple industries — far beyond energy and mobility applications. A non-exhaustive but exact overview of the affected products, including HS codes, can be found in the list below.

Why Might China Be Taking This Step?

The adjustment of export VAT rebates could be part of a broader industrial and trade policy strategy. Market observers are discussing several possible motivations:

• The measure could aim to reduce overcapacity and severe price pressure in export-oriented industrial goods, which have previously benefited from tax rebates.
  
• It could also serve to ease trade tensions, as export VAT rebates are often perceived internationally as indirect subsidies.
  
• In addition, the reform could contribute to more realistic international pricing, with export prices becoming less influenced by fiscal mechanisms.
  
• Over the longer term, it may also reflect an intention to reduce the emphasis on low-margin, high-volume exports while shifting focus toward higher value-added products.

What Could This Mean for Companies?

For internationally active companies with exposure to Chinese supply chains, several implications could arise:

• rising prices for imported chemical intermediates
• an increased need to reassess sourcing and supply chain strategies
• changing competitive dynamics between Chinese and non-Chinese producers

Especially in low-margin base chemicals, even relatively small fiscal adjustments could have a noticeable impact on prices and trade flows.

Conclusion

China’s reform of export VAT rebates could mark a turning point in how export-oriented industries have been supported in the past. While the scope and duration of the measures still require careful observation, there are growing indications that global material and value chains may gradually realign — particularly in the chemical and materials industries.

List of Chemical Base Materials and Upstream Intermediates Affected According to Official Tariff Classification: