EconomistsUrgeExportTaxRebateCutsasTradeSurplusHitsRecord

Chinese researchers and policy advisers are calling for targeted cuts to export tax rebates after the country’s trade surplus reached a record $1.2 trillion in 2025, arguing the fiscal savings could be redirected to households and rural incomes.

The proposals highlight a growing debate over whether China should continue using broad-based tax relief to support exporters as the country’s manufacturing competitiveness strengthens, export rebate costs rise and trade tensions intensify.

China’s trade surplus hit a record $1.2 trillion in 2025, far surpassing the $700 billion historical peaks of the U.S. and Japan, said Huang Qifan, a former senior lawmaker and executive vice chairman of the China Society for Innovation and Development Strategy. While attributing the surge to a decade of manufacturing advances rather than deliberate export-boosting policies, Huang warned the persistently massive imbalance could worsen global trade frictions.

To narrow the surplus, China could reduce export rebate rates for selected products and redirect the fiscal savings toward subsidies for households, poverty alleviation and higher rural incomes, Huang said. He also proposed allowing moderate yuan appreciation, lowering import tariffs further, curbing excessive competition among exporters and improving holiday arrangements to stimulate domestic consumption.

Zhang Yu, chief economist at Huachuang Securities Co. Ltd., has also argued that export rebate policy should be reassessed during China’s 15th Five-Year Plan period in light of shifting industrial competitiveness.

If China’s midstream manufacturing sector enters a strategic upgrading phase over the next one to three years, Beijing could consider more targeted, industry-specific adjustments to export rebates to create additional fiscal space, Zhang said. As profitability and competitiveness improve, some manufacturing sectors may be able to shift from receiving policy support to contributing more directly to public finances, she added.

China introduced export tax rebates in 1985, and the system became more comprehensive after the nationwide rollout of value-added tax in 1994. The rebates are intended to prevent double taxation and preserve tax neutrality by refunding domestic taxes already paid on exported goods, while imports are taxed in destination markets.

Economists generally do not classify export rebates as export subsidies as long as refund levels do not exceed taxes already collected, including value-added tax, consumption tax and tariffs. In practice, however, Beijing has repeatedly adjusted rebate policies as an industrial policy tool.

China raised export rebate rates on some goods seven times during 2008 and 2009 following the global financial crisis. The system then remained broadly stable, aside from cuts targeting heavily polluting, energy-intensive and resource-based products. In 2018 and 2019, Beijing again increased rebates for products including machinery and electronics to offset pressure from the China-U.S. trade dispute.

China currently applies value-added tax rates of 13%, 9% and 6%, and export rebate rates generally match the applicable VAT rate unless otherwise specified. A PricewaterhouseCoopers China report noted that actual refund rates range from 0% to 13%, and many exporters are unable to recover all input VAT costs because refunds are calculated under specific formulas.

The scale of export rebates has expanded rapidly in recent years, outpacing overall tax revenue growth. Export rebates totaled 2.1 trillion yuan ($309 billion) in 2025, equivalent to 12.1% of annual tax revenue, the highest share on record.

According to Zhang’s estimates, about 78% of export rebates are concentrated in midstream equipment manufacturing, while downstream consumer goods manufacturing, upstream construction materials and bulk commodities, and infrastructure-related industries account for 13%, 8% and 1%, respectively.

Zhang said industries with both high gross margins and high refund rates may warrant closer policy review because they combine strong profitability with substantial tax support. Her analysis identified sectors including specialized equipment, general equipment, shipbuilding, aerospace, electrical equipment and instrumentation as areas worth monitoring.

She cautioned, however, that this does not imply rebate cuts can be applied directly across those sectors and said any policy adjustment would require more detailed industry-level analysis.

Some industries have already faced significant rebate reductions over the past two years, particularly in new-energy sectors grappling with overcapacity and rising trade tensions.

Export rebates for aluminum and copper processing products were eliminated in December 2024. Rebates for photovoltaic products were cut to 9% from 13% at the end of 2024 and fully eliminated in April 2026. Battery product rebates were reduced to 9% in late 2024, lowered again to 6% in April 2026 and are scheduled to be phased out entirely from 2027.

Contact editor Han Wei (weihan@caixin.com)