China's phase-out of export tax rebates on batteries: policy rationale, industry impacts, and strategic responses

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I. Policy Interpretation and Adjustment Trajectory

The adjustment of the export tax rebate policy for batteries exhibits a clear gradual characteristic. Unlike PV products, which face direct elimination of the rebate, battery products are granted a relatively longer transition period. In detail, the rebate rate will drop to 6% on April 1, 2026, and will be fully abolished on January 1, 2027. This reflects the policy's consideration of the unique characteristics of the battery industry. The announcement also specifies that for battery products subject to consumption tax, the export consumption tax policy will remain unchanged, continuing to apply the consumption tax rebate (exemption) policy. This indicates that the policy primarily targets the logic of export subsidies rather than imposing comprehensive tax increases.

II. Policy Rationale

This policy adjustment reflects an optimization and transformation in the approach to supporting the new energy industry. Whether in PV or battery products, China aims to discourage enterprises from relying on low-price competition and internal involuted practices. The elimination of the export tax rebate will raise export costs, compelling producers to enhance their technological thresholds and service capabilities. In recent years, some PV and battery enterprises have not only engaged in low-price competition during exports but have also leveraged the export tax rebate as a bargaining chip in negotiations. This practice effectively transfers fiscal funds, originally intended to offset domestic value-added tax burdens, to foreign buyers, thereby turning the export rebate policy into a subsidy for overseas end-markets. Such actions not only undermine the profitability of domestic enterprises but also increase the risk of trade disputes, such as countervailing and anti-dumping measures, against China's PV and battery industries.

China has already achieved a significant global market share in the PV and battery sectors. In detail, PV products account for 70% of the global market, power batteries for 60%, and energy storage batteries for as much as 80%. This substantial market presence indicates that the PV and battery industries are gradually transitioning to a market-driven stage where heavy policy support is no longer necessary. Zhang Xiuqing, Director of the Regional and Industrial Economics Research Department at the China Center for International Economic Exchanges, noted that the phased elimination of export tax rebates for PV and battery products signals that these industries have matured into sectors capable of competing independently in the market, with established leading advantages internationally. The deeper intent of the policy is to steer the battery industry away from a model of mere scale expansion, thereby alleviating the mounting pressure from homogenized competition within the sector.

III. Direct Impact on the Industry Chain

The adjustment to the export tax rebate policy will directly increase export costs for enterprises and squeeze profit margins. Before April 1, 2026, the rebate rate stands at 9%. After this date, it will be reduced to 6%. And starting January 1, 2027, the VAT export rebate for battery products will be abolished entirely. Based on the current cell price range of Yuan 0.35–0.4/Wh, costs are expected to rise by Yuan 0.03–0.04/Wh, which will incentivize Chinese lithium battery producers to expedite their exports. The impact will vary across different trade models. Under the customer pick-up model (commonly used for battery exports), the tax burden will shift to downstream customers, while under the battery manufacturer self-delivery overseas model, battery producers will bear higher tax costs.

From an enterprise perspective, producers with a higher proportion of overseas business will be more significantly affected. Currently, major Chinese battery exporters include CATL, Gotion High-tech, CALB, and REPT Battero. According to the 2025 semi-annual financial reports of these listed companies, CATL reported a gross profit margin of 23% for domestic operations and 29% for international operations in H1. Gotion High-tech recorded a gross profit margin of 15% for mainland China operations and 19% for overseas operations (including Hong Kong, Macao, and Taiwan). Due to the support from export tax rebates, the gross profit margins of listed companies' overseas operations are generally higher than those of their domestic operations. Consequently, profits are likely to decline after the rebate cancellation.

During the window period before the official implementation of the policy, producers may accelerate production schedules and order fulfillment, pulling forward a portion of overseas demand originally expected in 2027 to 2026.

IV. Reshaping Trends in the Industry Landscape

The policy adjustment will accelerate the survival of the fittest within the industry. Enterprises with weak profitability and excessive reliance on export tax rebates will face significant pressure, potentially even exiting the market. This process will facilitate the elimination of outdated capacity and the structural optimization of the entire sector. Conversely, producers with technological advantages, strong cost control capabilities, and overseas production layouts will gain greater opportunities for development.

In the long term, this shift will drive enterprises to transition from "price competition" to "value competition." The previous strategy of relying on low prices supported by export tax rebates will become unsustainable. Producers will need to reduce production costs and enhance product performance through technological upgrades, or expand into higher value-added segments of the value chain.

V. Strategic Responses

Faced with the policy adjustments, battery export enterprises should adopt a multi-faceted approach. Firstly, strengthening cost control and supply chain optimization is essential. Companies should immediately evaluate their cost structures and mitigate part of the cost pressure through process improvements and efficiency enhancements. Against the backdrop of "anti-involution," the model of relying on export tax rebates for profits will no longer be viable. In the future, producers will need to rely on their own cost, technological, and quality advantages to compete internationally. Therefore, advancing a globalized production capacity layout is particularly important-for instance, relocating part of the production capacity to regions such as Southeast Asia and the Middle East to leverage local tax incentives or free trade agreements and maintain export competitiveness. Additionally, enterprises should focus on market diversification, consolidating mature markets like Europe and the United States while actively exploring emerging markets to reduce dependence on a single market. Simultaneously, producers should actively communicate with overseas clients to share the additional cost burdens, establishing long-term and stable partnerships to achieve risk-sharing and mutual benefits.

The elimination of the policy is not only an inevitable outcome of industrial development but also a sign of the industry's maturity. China's battery industry has evolved from a "seedling" requiring support into a "tree" capable of independently participating in market competition. In the future, Chinese battery plants will increasingly rely on technology, branding, and quality to compete globally. Some leading ones have already begun deploying production capacity in Europe, the Middle East, and North America to circumvent trade barriers. This transformation will undoubtedly propel China's battery industry toward a higher-quality development stage.

Edited by Cassie Li, lixiangying@mysteel.com