Tighter tax compliance could further squeeze margins at China's private fuel stations

For operators already facing thin or negative retail margins, the resulting adjustment could accelerate market consolidation. GL Consulting (premium think tank under Mysteel Group) estimates that China's fuel retail network could shrink by approximately 10,000 stations on a net basis by 2030 relative to 2025. This outlook reflects multiple structural pressures, including profitability, energy substitution, supply-demand conditions and regulatory enforcement, rather than the invoicing policy alone.

| Transaction-triggered e-invoicing tightens compliance requirements

China's new policy shifts the invoicing trigger from a customer request to the completion of a transaction. Under the State Taxation Administration's Announcement No. 11 of 2026, fuel retailers must issue fully digital electronic invoices through the tax authority's Leqi platform based on actual transaction data.

The requirements cover sales collected through third-party payment platforms, internet platforms, fuel cards, cash, credit arrangements and corporate bank transfers. The use of payment QR codes registered to entities other than the fuel retailer is also explicitly subject to enforcement.

The significance lies less in the invoicing process itself than in the resulting data trail.

Once transactions are systematically linked to payment, order and invoice records, it becomes harder to sustain business models that depend on unreported sales, off-invoice transactions or fragmented payment collection.

However, automated invoicing does not, by itself, guarantee accurate source data. Effective enforcement will still depend on the integrity of fuel-dispenser data, the completeness of revenue collection and the ability to reconcile sales with purchases and inventory movements.

For the industry, the likely direction is clear: compliance becomes more measurable, while the scope for competing through opaque cost structures narrows.

| Why some fuel retailers may struggle to absorb higher effective costs

The immediate pressure is likely to fall disproportionately on private fuel stations that depend on lower-cost, non-compliant or off-invoice fuel supplies to maintain retail price competitiveness.

Market estimates cited in GL Consulting's analysis suggest that certain off-invoice gasoline and diesel supplies can be RMB 600-1,400/tonne cheaper than compliant, fully invoiced alternatives.

That discount is substantial relative to current retail economics. In mid-September 2026, GL Consulting estimated the retail margin on RON 92 gasoline at approximately RMB 370/tonne, while the margin on 0# diesel had fallen to around negative RMB 11/tonne.

These figures illustrate the limited room retailers have to absorb higher effective compliance costs.

Where the procurement cost differential exceeds the entire retail margin, operators cannot easily recover the difference simply by raising pump prices. Doing so risks losing customers to nearby competitors, particularly in markets where price competition is already intense.

As previously underreported transactions become more visible to tax authorities, the effective tax burden of operators that have not fully reported sales may increase. Stations that rely on off-invoice procurement or sales to sustain low prices are therefore likely to face disproportionate pressure.

The key risk is not necessarily an immediate wave of closures after 1 November. Rather, it is the erosion of a cost advantage that has allowed some operators to remain competitive despite persistently weak margins.

| How tighter retail compliance could affect refinery price differentials

The implications extend beyond fuel retailers. Tighter transaction traceability could also reshape competition between independent refineries and major state-owned refiners.

Following China's 2021 tightening of consumption-tax enforcement on imported blending components, non-compliant blending routes came under greater pressure and compliance across the independent refining sector increased. The price advantage historically enjoyed by some independent refiners has consequently narrowed.

GL Consulting's analysis shows that by 2025, the price differentials between Shandong independent refineries and major state-owned refiners had narrowed to approximately:

Gasoline: RMB 1,028/tonne

Diesel: RMB 632/tonne

The latest invoicing requirements could add to this pressure.

If dispenser data are accurately transmitted and transaction records can be reconciled effectively with upstream purchases and downstream sales, retailers will face greater difficulty purchasing non-compliant products or supplies supported by misclassified invoices, including those issued under inappropriate chemical-product classifications.

That could further reduce the buyer base for non-compliant refinery output and weaken the price advantage of suppliers whose competitiveness depends on such channels.

The effect is conditional, however. The extent of any further narrowing in refinery price differentials will depend on enforcement effectiveness, the availability of compliant products and prevailing supply-demand conditions.

For refiners, the issue is not simply whether compliance costs rise, but whether their existing price advantage remains large enough to attract downstream buyers.

| Competition is shifting towards location, efficiency and service quality

As compliance costs become more comparable across operators, competition in China's fuel retail market is likely to depend less on opaque sourcing advantages and more on underlying operating fundamentals.

Location, customer traffic, consistent fuel quality, operating efficiency and non-fuel services should become increasingly important differentiators.

State-owned operators, compliant foreign-invested company-operated stations and well-managed private stations may be relatively better positioned to adapt to the new requirements, although their performance will continue to depend on local demand and operating costs.

By contrast, stations that rely heavily on off-invoice sales, non-compliant procurement or unusually low fuel prices face greater exposure.

The same dynamic could affect refinery market shares. As compliance requirements tighten across the downstream distribution network, the ability to provide reliably compliant products at competitive ex-refinery prices may become more important in securing retail customers.

The policy therefore represents more than a change in invoicing procedures. It could reinforce a broader shift in which compliance, location and operating efficiency increasingly determine who can sustain margins across China's fuel distribution chain.

| What this means for China's fuel market

GL Consulting estimates that China's fuel retail network could experience a net reduction of around 10,000 stations by 2030 compared with 2025.

This is a cumulative industry forecast, not an estimate of closures caused by the invoicing policy alone. The eventual outcome will depend on several interacting forces: tighter tax enforcement, weak retail profitability, changing fuel demand, substitution by new-energy vehicles, supply-demand adjustments and differences in local market competitiveness.

The new invoicing regime could accelerate the exit of marginal operators by reducing the cost advantages associated with non-compliant business models. At the same time, it may gradually shift market share towards stations with stronger locations, more reliable supply chains and better operational discipline.

For fuel retailers, the priority is to assess how much of their competitive position depends on procurement discounts and invoicing practices that may no longer be sustainable.

For refiners, the key question is whether tighter downstream compliance will affect the pricing and marketability of different product streams.

For investors and industry participants, the more important signal will be how margins, station numbers and regional market shares evolve after the new requirements take effect.

GL Consulting's full analysis examines how transaction-triggered e-invoicing could reshape cost structures, competition and consolidation across China's refined-product value chain.

China Policy Perspective (Oct. Issue) covers:

• The operational and margin implications for different types of fuel retail stations
• The estimated scale and cost advantages of off-invoice fuel sales among private operators
• Historical price differentials between Shandong independent refineries and major state-owned refiners
• The assumptions behind the forecast net reduction of around 10,000 fuel retail stations by 2030
• The potential implications of changes in consumption-tax collection and tighter transaction traceability for the broader supply chain

To request the full report, please contact us at inquiries@mysteel.com for a detailed assessment of the policy's implications for retail margins, refinery pricing and industry restructuring.