China will cancel or reduce export tax rebates for a number of products starting from December 1, including several related to energy transformation, according to a November 15 document jointly issued by China’s Ministry of Finance and State Taxation Administration.
Li Chao, chief economist of Zhejiang Securities, wrote in Caixin that China’s total exports from January to October 2024 amounted to about CNY 20.8 trillion (USD 2.87 trillion). He noted that, as a rough estimate, export goods subject to the tax rebate adjustment accounted for about 6.7% of China’s exports.
Export tax rebate is the refund of domestic turnover tax (primarily value added and consumption tax), paid before exportation to businesses on products that they export. It was introduced in order to enhance the competitiveness of exported goods in the international market. China officially implemented the rebate policy in 1985.
According to the government document, the export tax rebates of 59 products will be cancelled, and those of another 209 products will be reduced from 13% to 9%. Products for which rebates have been cancelled include aluminium, steel and used cooking oil (UCO), while those with reduced rebates include solar photovoltaic (PV) panels, lithium batteries and several non-metallic mineral products.
China exports a large amount of UCO, fats and oils of animal or vegetable origin that are used as the raw material for biodiesel and sustainable aviation fuel. Analysis by Southern Weekend shows that the cancellation of export tax rebates will cause the price of UCO to be lowered domestically, which will help promote the use of biofuels, such as in the refuelling of vehicles and ships.
Meanwhile, in the case of lithium batteries, even if reduced tax rebates lead to an increase in price, exporters will still maintain a price advantage and will not be significantly affected, according to analysis by business and financial information provider Wall Street CN.
Gantan Technology, a blog on emissions-reduction technology, noted that in the first three quarters of 2024, China exported a total of USD 26.36 billion worth of solar PV products. At the 13% rate, China’s solar PV businesses will have received tax rebates totalling USD 3.43 billion. This would be reduced by just over USD 1 billion at the new 9% rate.
Cancelling or reducing export tax rebates could also help assuage global concerns about the “overcapacity” problem among China’s “new three” sectors (electric vehicles, solar cells and lithium batteries). Southern Weekend quoted a solar PV industry insider as saying that the export tax rebate policy for the industry should be completely abolished because “China’s solar PV industry has developed to a mature stage and is the major player in the business”.
Read Dialogue Earth’s previous analysis on how China attained the lead in the “new three” sectors globally.