A Brief Analysis Of The Reduction In China's Photovoltaic Export Tax Rebate Rate

Announcement No. 15 of 2024 of the Ministry of Finance and the State Administration of Taxation of China

The following announcement is hereby made on the adjustment of export tax rebate policy for aluminum and other products:

1. Cancel export tax rebate for aluminum, copper, and chemically modified animal, plant or microbial oils, fats and other products. See Annex 1 for the specific product list.

2. Reduce the export tax rebate rate for some finished oils, photovoltaics, batteries, and some non-metallic mineral products from 13% to 9%. See Annex 2 for the specific product list.

3. This announcement will take effect on December 1, 2024. The export tax rebate rate applicable to the products listed in this announcement is defined by the export date indicated on the export goods declaration form.

This Announcement Is Hereby Made.

The adjustment of the tax rebate policy will help repair the price of the industrial chain and accelerate the penetration of new technologies in the industry.

The Ministry of Finance and the State Administration of Taxation issued the "Announcement on Adjusting the Export Tax Rebate Policy", proposing to reduce the export tax rebate rate for photovoltaic cells and modules from 13% to 9% from December 1, 2024.

1. The cost of exporting cells/modules has increased, driving up prices.

The export tax rebate rate has been lowered from the previous 13% to 9%, which is expected to be borne by the downstream, pushing up the cost of exporting cells/modules by about 4%. According to the current tax-inclusive price of modules of about 0.7 yuan/W, the change may push up the price of export modules by about 0.7/1.13*4%≈0.02~0.03 yuan/W. In addition, pushing up prices will also help avoid stimulating overseas domestic trade protection.

2. Accelerate the industry reshuffle and force technological progress.

The increase in export product costs has pushed up prices, further testing the ability of component manufacturers to sell products in overseas channels, especially their premium ability. In addition, as the cost curve of the entire industry has uniformly moved up, it has prompted them to accelerate technological progress, and the demand for cost reduction and efficiency improvement has become more urgent, and new technologies are expected to accelerate penetration.

3. Negative factors are expected to have little marginal impact. Negative impacts are divided into:

(a) Demand: Component prices are already low, even if they are revised up by 4% from the current RMB 0.7/W, it will have little impact on terminal demand, but may stimulate downstream goods due to "buy high and not buy low";

(b) Domestic competition: It may force foreign trade companies to enter the domestic market and intensify industry competition, but the domestic photovoltaic market has become one of the most competitive photovoltaic markets in the world. Even if the supply margin increases slightly, the marginal impact of industry competition is expected to be limited.

4. Since the second half of the year, the industry has proposed a variety of supply reform methods such as production restrictions and price restrictions, and policy adjustments on export tax rebates have also been discussed. We believe that the competitiveness of Chinese photovoltaic enterprises does not require tax rebate benefits at all. The reduction in export tax rebate rate is another extension of this round of supply reform combination punches, which is expected to accelerate the supply-side clearance.

On the one hand, the reduction in tax rebate rate is equivalent to raising domestic costs by 4% (the current price corresponds to about 3 cents/W), widening the cost difference between domestic and overseas production capacity, which is beneficial to leading enterprises with overseas factory building capabilities;

On the other hand, leading enterprises with product brand advantages have stronger price-adjusting capabilities, and are expected to transmit the impact of the reduction in tax rebate rate to downstream more quickly and fully, further widening the profit advantage compared with second- and third-tier enterprises.

5. From the short-term report, although the profit level of some overseas orders with agreed prices may be affected by this incident in stages, the impact is limited because the industry has certain expectations for this. A leading enterprise reported that the impact of the reduction in tax rebate rate had been considered when quoting before. At the same time, since the supply and demand status of overseas demand that is highly dependent on Chinese enterprises has not changed, the reduction in tax rebate rate is expected to drive the export price of components to rise.