China's Export Rebate Cut Reshapes Industry, Redistributing Supply Chain Profits

On January 8, 2026, China's Ministry of Finance and the State Taxation Administration announced the end of a major policy era for its new energy exports. The VAT export rebate for photovoltaic (PV) products will be canceled from April 1, 2026, while the rebate for batteries will be phased out over two years.

This move is more than a fiscal adjustment; it's a calculated strategy to steer the sector away from runaway expansion and toward sustainable, high-quality development.

01 Policy Details: Immediate Cut for PV, Gradual Phase-out for Batteries

The policy treats the PV and battery industries with nuanced differences.

The PV sector faces an immediate and complete withdrawal of support, with its VAT export rebate terminated entirely on April 1, 2026. This marks the first full cancellation since the rebate system was introduced to support the industry around 2013.

The battery sector, however, has been granted a more extended runway. The policy implements a two-step, two-year transition period: first reducing the rebate rate from 9% to 6% from April 1, 2026, then eliminating it completely on January 1, 2027. This design reflects official consideration of the segment's specific characteristics and provides companies with crucial adaptation time.

02 Industry Reshuffle: Eliminating the Weak, Empowering the Strong

A core objective of the policy is to end the destructive "involution" or "rat-race" competition fueled by rebate-subsidized low prices. Industry experts note that the rebate had, in its later stage, effectively become a subsidy for cutthroat internal competition, allowing some firms to engage in vicious price wars in international markets.

With this "lifeline" pulled, small and medium-sized enterprises that rely on rebates for their razor-thin margins will face an existential crisis. Their potential exit is expected to accelerate a market consolidation, channeling resources toward leading firms with core technologies, strong brands, and efficient operations.

Consequently, industry giants like CATL and BYD perceive this as a long-term positive, anticipating the restoration of healthier market order and pricing power once inefficient capacity is cleared.

03 Profit Redistribution: A Supply Chain Stress Test

The policy acts as a top-down "stress test" for the new energy supply chain, with a significant outcome being the reallocation of profits among different segments.

Currently, profit distribution is highly uneven. Upstream polysilicon production can still command profit margins as high as 22-28%, while downstream segments like wafers, cells, and modules may see their losses deepen rapidly after the rebate is removed.

The cost pressure from the rebate cancellation will propagate upstream. Downstream players, fighting for survival, will be forced to negotiate lower prices from their material suppliers. This dynamic is expected to compress the excessive profits in upstream segments, guiding the entire chain toward a more rational and sustainable profit structure.

04 Global Strategy: From Exporting Products to Exporting Capacity

While forcing domestic upgrades, the policy also charts a clear new course for globalization: transitioning from "exporting products" to "exporting production capacity".

The increased cost of exporting batteries directly from China will strongly incentivize companies to accelerate overseas factory construction. Building capacity in regions like the Middle East, Latin America, and Southeast Asia helps bypass growing trade barriers and positions firms closer to their end markets.

Analysts from TrendForce note this signifies a new phase in the global strategy of China's new energy sector. The future focus will be on replicating core technologies and managerial expertise worldwide, moving beyond merely shipping container loads of finished goods.

05 Broader Implications: Fiscal Optimization and Trade Friction Reduction

On a macro level, the policy adjustment serves multiple strategic goals. First, it optimizes the allocation of fiscal resources. Export rebates represent a massive fiscal expenditure. Redirecting funds away from subsidizing industries that already possess global competitiveness allows for increased investment in more pressing areas like basic research, critical technology breakthroughs, and social welfare.

Second, it proactively mitigates international trade friction. Export rebates are often misinterpreted by international competitors as unfair government subsidies. By proactively scaling back these incentives, China aims to reduce unnecessary losses from trade disputes and secure a more stable global environment for its truly competitive advanced manufacturing.

"This is like a financial health check for the entire industry. The unhealthy parts will be naturally eliminated," remarked one industry analyst. He believes that after the short-term pains, the industry could give rise to world-class enterprises with genuine global pricing power and influence.

Reports indicate that China's PV export prices had already begun to stabilize in 2025, showing initial signs of industry self-discipline. The withdrawal of this fiscal policy is now set to work in tandem with these market forces, jointly propelling the sector into a new era defined by quality and sustainable growth.

On January 8, 2026, China's Ministry of Finance and the State Taxation Administration announced the end of a major policy era for its new energy exports. The VAT export rebate for photovoltaic (PV) products will be canceled from April 1, 2026, while the rebate for batteries will be phased out over two years.

This move is more than a fiscal adjustment; it's a calculated strategy to steer the sector away from runaway expansion and toward sustainable, high-quality development.

01 Policy Details: Immediate Cut for PV, Gradual Phase-out for Batteries

The policy treats the PV and battery industries with nuanced differences.

The PV sector faces an immediate and complete withdrawal of support, with its VAT export rebate terminated entirely on April 1, 2026. This marks the first full cancellation since the rebate system was introduced to support the industry around 2013.

The battery sector, however, has been granted a more extended runway. The policy implements a two-step, two-year transition period: first reducing the rebate rate from 9% to 6% from April 1, 2026, then eliminating it completely on January 1, 2027. This design reflects official consideration of the segment's specific characteristics and provides companies with crucial adaptation time.

02 Industry Reshuffle: Eliminating the Weak, Empowering the Strong

A core objective of the policy is to end the destructive "involution" or "rat-race" competition fueled by rebate-subsidized low prices. Industry experts note that the rebate had, in its later stage, effectively become a subsidy for cutthroat internal competition, allowing some firms to engage in vicious price wars in international markets.

With this "lifeline" pulled, small and medium-sized enterprises that rely on rebates for their razor-thin margins will face an existential crisis. Their potential exit is expected to accelerate a market consolidation, channeling resources toward leading firms with core technologies, strong brands, and efficient operations.

Consequently, industry giants like CATL and BYD perceive this as a long-term positive, anticipating the restoration of healthier market order and pricing power once inefficient capacity is cleared.

03 Profit Redistribution: A Supply Chain Stress Test

The policy acts as a top-down "stress test" for the new energy supply chain, with a significant outcome being the reallocation of profits among different segments.

Currently, profit distribution is highly uneven. Upstream polysilicon production can still command profit margins as high as 22-28%, while downstream segments like wafers, cells, and modules may see their losses deepen rapidly after the rebate is removed.

The cost pressure from the rebate cancellation will propagate upstream. Downstream players, fighting for survival, will be forced to negotiate lower prices from their material suppliers. This dynamic is expected to compress the excessive profits in upstream segments, guiding the entire chain toward a more rational and sustainable profit structure.

04 Global Strategy: From Exporting Products to Exporting Capacity

While forcing domestic upgrades, the policy also charts a clear new course for globalization: transitioning from "exporting products" to "exporting production capacity".

The increased cost of exporting batteries directly from China will strongly incentivize companies to accelerate overseas factory construction. Building capacity in regions like the Middle East, Latin America, and Southeast Asia helps bypass growing trade barriers and positions firms closer to their end markets.

Analysts from TrendForce note this signifies a new phase in the global strategy of China's new energy sector. The future focus will be on replicating core technologies and managerial expertise worldwide, moving beyond merely shipping container loads of finished goods.

05 Broader Implications: Fiscal Optimization and Trade Friction Reduction

On a macro level, the policy adjustment serves multiple strategic goals. First, it optimizes the allocation of fiscal resources. Export rebates represent a massive fiscal expenditure. Redirecting funds away from subsidizing industries that already possess global competitiveness allows for increased investment in more pressing areas like basic research, critical technology breakthroughs, and social welfare.

Second, it proactively mitigates international trade friction. Export rebates are often misinterpreted by international competitors as unfair government subsidies. By proactively scaling back these incentives, China aims to reduce unnecessary losses from trade disputes and secure a more stable global environment for its truly competitive advanced manufacturing.

"This is like a financial health check for the entire industry. The unhealthy parts will be naturally eliminated," remarked one industry analyst. He believes that after the short-term pains, the industry could give rise to world-class enterprises with genuine global pricing power and influence.

Reports indicate that China's PV export prices had already begun to stabilize in 2025, showing initial signs of industry self-discipline. The withdrawal of this fiscal policy is now set to work in tandem with these market forces, jointly propelling the sector into a new era defined by quality and sustainable growth.