The export tax rebate policy will be increased again in 2026, and the market is generally concerned about two core issues: First, under the background that my country’s trade surplus has hit a record high and the global competitiveness of the manufacturing industry is firmly at the forefront of the world, why should we actively reduce the support of the export tax rebate policy? Second, whether the continuous adjustment of the tax rebate policy will have an impact on the stable growth of my country’s foreign trade, what are the deep policy considerations and long-term impacts behind it.
What is refunded by the export tax rebate is the value-added tax actually paid during the domestic production and circulation of exported goods.
As the main tax in China’s tax system, value-added tax runs through every link from raw material procurement, production and processing to final sales.
When goods are declared for export, the state will refund the accumulated VAT input tax in each link before export to the exporting enterprise, and exempt the export link from VAT output tax, allowing the goods to leave the country without VAT, thus maintaining a price advantage in the international market.
From the perspective of fiscal accounting, export tax rebates are listed as “tax revenue deductions” in general public budget revenue, that is, export tax rebates increase and current fiscal revenue decreases by the same amount.
Since China officially established the export tax rebate system in 1985, its original intention was to encourage exports, but it has now transformed into serving multiple policy goals under different economic situations.
This policy has gone through many rounds of adjustments in the past four decades, mainly in two directions: downward adjustment (tightening) and upward adjustment (loosening).
Lowering or structurally canceling tax rebates mostly points to industrial upgrading, green transformation and high-quality development goals; increasing tax rebates occurs when the economy suffers major external shocks and exports shrink sharply, to protect the export industry.
With my country’s exports maintaining a good growth trend, the scale of export tax rebates has increased simultaneously, and its impact on fiscal revenue has increased.
In 2025, the total export tax rebate for the whole year will exceed 2.1 trillion yuan, with a year-on-year growth rate of 11%.
The proportion of export tax rebates in tax revenue has climbed to 12%, a new high since 2008, and the share of export tax rebates in the overall tax revenue continues to expand.
On the one hand, export tax rebates subsidize export enterprises, but on the other hand, they are also a direct deduction from tax revenue. The higher its proportion, the actual financial space available for general public expenditure will be compressed accordingly.
my country’s export tax rebate structure is similar to the export structure and is highly concentrated in the midstream manufacturing sector.
In 2025, midstream manufacturing export tax rebates will account for as much as 80.6%, with computer communications, electrical machinery, automobile manufacturing and other industries leading the tax rebate scale; upstream procurement and public utilities will account for only 0.2%, and upstream manufacturing and downstream manufacturing will account for 9.0% and 10.2% respectively.
This distribution pattern also means that further adjustments to the export tax rebate policy in the future may mainly affect the midstream manufacturing link.
Currently, our country’s finances are facing structural constraints such as the continued decline of macro tax burdens and pressure on the balance of payments gap. The foreign trade field is encountering practical challenges such as frequent trade frictions and vicious “involution” of the export industry. Export tax rebates are a key policy variable that connects industrial development, foreign trade stability and fiscal balance. The underlying logic of its adjustment urgently needs to be systematically dismantled.
On the fiscal expenditure side, China has gradually entered a moderately aging society, and the gap between social security fund revenue and expenditure is expanding year by year. It currently mainly relies on first account fiscal subsidies, social security fund investment income and interest income, and social security balances to make up for it.
However, as the population ages and the demographic structure changes, it is still necessary to take precautions and nip problems in the bud.
The broad-based deficit ratio is at a global high, and the slope of the leverage ratio cannot be ignored.
From an incremental perspective, the current broad deficit rate of around 9% is already at a relatively high level globally, with limited room for improvement.
From a stock perspective, China’s government leverage ratio is about 99.2%. Although it is lower than the average of developed economies, it is rising rapidly and is expected to equal it around 2028.
In terms of internal structure, local debt and urban investment interest-bearing debt together account for more than 75% of government debt. Land revenue continues to increase negatively, urban investment returns decline, and local borrowing capabilities are limited.
On the fiscal revenue side, the macro tax burden continues to decline, and tax flexibility needs to be improved urgently.
The proportion of taxation in GDP has dropped from 18% in 2013 to 13% in 2025, and the tax elasticity coefficient has been lower than 1 for a long time. Non-tax revenue can fill the gap in the short term, but it is unsustainable in the long term, and tax reform is imperative.
There is limited room for tax increases for residents, and property taxes and inheritance taxes are expected to be difficult to introduce in the short term. Export tax rebates do not directly touch residents’ tax burdens, but they can release revenue and promote industrial upgrading, making them a more realistic entry point for fiscal and tax reform.
The adjustment of export tax rebate policy has the solid support of a major country.
my country is a manufacturing superpower. The added value of the manufacturing industry will account for nearly 30% of the world in 2025. The scale effect and cost digestion ability are extremely strong. Enterprise pricing and resistance to external shocks have been significantly improved, and the short-term impact of the tax rebate rate reduction can be fully absorbed.
my country is a net export superpower. Its trade surplus has ranked first in the world for 11 consecutive years. The surplus will reach 1.2 trillion US dollars in 2025. The export market is highly fragmented and there is ample room for policy adjustment.
my country is a trading superpower and has long been at the core of international economic and trade competition. The low-price competition caused by tax rebates and subsidies is easy to control. Adjusting tax rebates can reduce the probability of triggering trade frictions.
my country is a country with high-quality development. Export tax rebates have been used as bargaining chips for price cuts, exacerbating industry involution. Policy adjustments can force the liquidation of inefficient production capacity and promote the transformation of the industry towards technological upgrading and value competition.
Which other industries may face adjustments to export tax rebate policies in the future?
Four screening criteria can be used: first, external competitiveness, using revealed comparative advantage RCA and industry weighted average export tax rebate rate as indicators to screen industries with outstanding global competitive advantages; second, internal competitiveness, taking the industry profitability level after excluding tax rebates as the core to screen industries with strong profitability; third, focusing on the “two high-end and one capital” industries to continue the policy direction of industrial structure optimization; fourth, focusing on industries with prominent “involution” competition, in line with high-quality development requirements.
Optimizing the export tax rebate policy will have two impacts: on the industrial side, in the short term, there may be a rush for exports effect, and in the long term, it will promote the clearance of inefficient production capacity and increase industry concentration; on the fiscal side, it is estimated that if the tax rebate rate is reduced by 1%, more than 100 billion in new fiscal revenue can be added every year, which is similar in magnitude to the annual childcare subsidy; if the export tax rebate is completely abolished, it can contribute nearly 2 trillion in fiscal revenue every year, which is basically the same as the scale of fiscal subsidies.
