When it comes to export tax rebates, most people’s understanding is only literal: the tax rebate subsidies given by the state to foreign trade companies are used to support exports, seize overseas markets, and stabilize manufacturing employment.
Most interpretations on the market only talk about the benefits of the policy, but few people have in-depth dismantled the complete chain of transmission that this set of policies has formed in the real economy after running for more than ten years.
We see many social and economic phenomena every day, such as the Pearl River Delta and Yangtze River Delta foreign trade factories generally work two shifts and have very long working hours of two or three days off per month; the wages of front-line workers in the manufacturing industry have not increased for a long time; a large number of high-quality industrial products are only exported but not sold domestically, domestic prices are relatively high, residents’ willingness to consume continues to be low, and domestic demand is chronically insufficient. The sources of these seemingly unrelated problems can all be connected to the underlying business rules of export tax rebates.
To understand all chain issues, the first step is to break the public’s inherent misunderstanding about “foreign trade companies making money”.
Many people think that factories receive export orders to make profits by producing products and earning processing price differences.
But the real small and medium-sized foreign trade manufacturing industry has long been different from this profit model.
For the vast majority of low-end and mid-range export processing factories, the processing profits of the products themselves are infinitely close to zero, and they even receive orders at a loss.
The only core source of their survival, profitability, and ability to expand production and recruit workers all year round is export tax rebates.
All domestic industrial products will pay value-added tax throughout the entire process of raw material procurement, production, processing, distribution and sales.
When a product leaves the factory, it itself contains a tax cost of about 13%.
If the product is sold domestically, the tax will be included in the selling price and borne by the end consumer.
But if the goods are exported overseas, foreign consumers will not bear China’s value-added tax.
In order to make domestic products cheaper and more price-advantageous overseas, the state has introduced an export tax rebate policy: after the enterprise’s goods are declared for export and foreign exchange collection is in compliance, the state returns the value-added tax paid by the enterprise in the production process to the enterprise in proportion.
The tax rebate ratio for mainstream categories is mostly between 9% and 13%.
This forms the core survival rule of the foreign trade industry: tax refund is the factory’s pure profit.
Nowadays, competition in the domestic foreign trade industry is extremely saturated. There are thousands of similar factories. In order to grab overseas orders, all manufacturers are frantically lowering prices.
The unspoken unspoken rule of the industry is: give away all the profits from product processing and keep only the tax refund profits.
When a company’s core profits no longer come from product premiums and technological advantages, but from a fixed proportion of tax rebate subsidies, the company’s only way out is very single: to increase production and increase scale.
Export tax rebates are calculated based on the total shipment volume. The greater the shipment volume and the higher the customs declaration amount, the higher the total tax rebate received, and the higher the company’s annual net profit.
This forces all foreign trade factories to pursue the ultimate production capacity and cannot stop work, reduce production, or rest during the off-season.
This is the underlying reason for the extremely long working hours in foreign trade factories.
Ordinary domestic sales factories have obvious off-peak and peak seasons.
Work is rushed during the peak season, production is reduced during the off-season, employees have normal weekend breaks and get off work on time.
However, a pure export factory has only one goal throughout the year: non-stop production, non-stop shipments, non-stop customs clearance, maximizing the accumulated shipment quota, and maximizing tax refund profits.
Extra long working hours do not correspond to high wages, but to the long-term low wages in the manufacturing industry.
This is also the core livelihood issue brought about by the export tax rebate chain.
The company’s profit structure determines that it has no room for salary increases.
If a domestic sales company sells its products well, has high profits, and has a strong brand premium, the company will have excess profits to provide employees with salary increases, benefits, and improved treatment.
However, foreign trade tax rebate-oriented factories have zero or even slight losses in product processing. All profits of the company come from tax rebates refunded by the policy.
Many people believe that insufficient domestic demand and people’s fear of spending money are simply due to high housing prices, high commodity prices, and anxiety about savings.
These are overlapping factors, but the underlying core source is the stagnant growth of residents’ labor income.
The stagnant income of residents is directly caused by the wage solidification model of foreign trade manufacturing.
By connecting the logic of the full text, we can clearly see this complete interlocking causal chain without any breakpoints, which is fully consistent with the real operating status of the real economy.
The export tax rebate policy exists, allowing companies to give up product processing profits and rely on tax rebates to make profits.
The involution of the industry has intensified, with all factories grabbing orders at low prices and taking orders at zero profit, relying entirely on scale in exchange for tax rebates.
If you want to get a tax refund, you must go to extreme mass production, which forces factories to extend their working hours, work 24/7, and produce at a high intensity.
One point must be made objectively: Export tax rebate itself is a reasonable and necessary industrial policy.
In the early days of reform and opening up and the start-up stage of the manufacturing industry, this set of policies helped us quickly open overseas markets, accumulate foreign exchange reserves, build a manufacturing system, and solve massive employment problems, which has made great contributions.
However, any policy will have lagging structural side effects after the times change, industry saturation, and involution intensify.
After understanding the entire set of logic, we do not need to be pessimistic, nor do we need to one-sidedly deny the real economy, nor do we need to complain about the current situation of the industry. Instead, we can understand future industry trends more rationally.
The low-end foundry involution model will inevitably be phased out.
The improvement of wages and labor environment is a long-term inevitable trend.
The transformation of industrial domestic sales is the key to activating domestic demand.
After reading this complete set of chain logic, I believe everyone has a new understanding of the underlying reasons for factory working hours, manufacturing wages, and weak domestic demand.
Everyone is welcome to discuss and discuss whether the future transformation of the foreign trade industry can truly improve the income and working environment of ordinary workers.
