China's Lithium Battery Export Tax Rebate Adjustment: Policy Details, Impacts and Guidelines for Overseas Buyers
On January 9, 2026, China's Ministry of Finance and State Taxation Administration jointly issued a key policy announcement that has far-reaching implications for the global lithium battery industry: a phased reduction and eventual cancellation of value-added tax (VAT) export rebates for battery products .1. Following the initial reduction of the rebate rate from 13% to 9% in November 2024 .4, this new adjustment marks a profound shift in China's industrial support strategy for the lithium battery sector. As China dominates 76% of the global lithium-ion battery production .6, this policy change will reshape the global supply chain dynamics. For overseas buyers who rely heavily on Chinese lithium battery supplies—especially those in automotive, energy storage, and consumer electronics sectors—understanding the policy details, potential impacts, and actionable response strategies is critical to mitigating risks and ensuring supply chain stability.
Core Details of China's Lithium Battery Export Tax Rebate Policy Adjustment
The latest policy outlines a clear two-phase timeline for lithium battery export tax rebate adjustments, providing a buffer period for the industry to adapt while signaling a decisive move toward market-driven competition. The policy covers 22 categories of battery products, including lithium-ion batteries and nickel-hydrogen batteries that are widely used in electric vehicles, energy storage systems, and consumer electronics .1. Key details are as follows:
• First Phase (April 1 to December 31, 2026): The VAT export rebate rate for lithium battery products will be reduced from the current 9% to 6% .7. This phase aims to ease the transition pressure for both Chinese manufacturers and overseas buyers by implementing a gradual rather than abrupt cut.
• Second Phase (January 1, 2027 onwards): The VAT export rebate for lithium battery products will be completely canceled .4. After this date, Chinese lithium battery exporters will no longer enjoy any VAT rebate incentives for overseas shipments.
• Key Clarifications: For lithium battery products subject to consumption tax, the existing consumption tax refund (exemption) policy remains unchanged .8. The applicable rebate rate for any shipment is determined by the export date indicated on the customs declaration form, which means that orders shipped before April 1, 2026, can still claim the 9% rebate .8.
Rationale Behind the Policy: Curbing "Involution" and Promoting High-Quality Development
The phased cancellation of lithium battery export tax rebates is not an arbitrary decision but a targeted response to long-standing challenges in the industry. Over the past few years, China's lithium battery industry has experienced excessive competition, with some enterprises relying heavily on tax rebate incentives to engage in low-price bidding .2. This "involution" has eroded corporate profitability, hindered technological innovation, and even increased the risk of anti-dumping and countervailing investigations against Chinese battery products in global markets .1.
From a policy perspective, the adjustment aims to guide the lithium battery industry away from policy-dependent, price-centric expansion toward innovation-driven, high-value-added development .1. As noted by Lin Boqiang, Dean of the China Energy Policy Research Institute at Xiamen University, the significant reduction in lithium battery production costs driven by technological progress and scale expansion has made the cancellation of export rebates a reasonable and necessary step for industry maturation .4. By removing tax rebate subsidies, the policy will help overseas market prices better reflect the actual production costs and technological value of lithium batteries, fostering healthier global competition .4.
Additionally, the policy eases pressure on public finances and promotes more efficient allocation of fiscal resources.2. The initial 4-percentage-point rebate cut in 2024 already reduced the total amount of export tax rebates for the industry by approximately $1.054 billion .4, and the full cancellation will further optimize China's fiscal expenditure structure.
Impacts of the Policy Adjustment: From Short-Term Cost Shocks to Long-Term Industry Restructuring
The tax rebate adjustment will have multi-faceted impacts on Chinese lithium battery manufacturers, global supply chains, and overseas buyers. The effects will be most pronounced in two phases:
Short-Term Impact: Cost Transfer and Pre-Policy "Rush to Export"
In the short term, the most direct impact will be the transfer of tax costs to downstream buyers. According to Yang Le, a senior lithium battery analyst at Shanghai Nonferrous Metals Network, under the common "customer pickup" model for lithium battery exports, the tax burden resulting from the rebate cut will likely be passed on to overseas buyers, directly increasing their procurement costs and squeezing profit margins .2. For manufacturers adopting the "factory delivery to overseas" model, they will bear higher tax costs themselves, which may also lead to price increases to maintain profitability .2.
Long-Term Impact: Industry Consolidation and Technological Upgrade
The policy will accelerate supply-side reform in China's lithium battery industry, weeding out inefficient low-end产能 and promoting resource concentration in leading enterprises with advanced technologies .1. This restructuring will drive manufacturers to shift their focus from price competition to technological innovation, such as R&D of high-energy-density batteries and intelligent production to reduce energy consumption .1. For overseas buyers, this long-term trend means access to higher-quality, more technologically advanced lithium battery products, albeit at a higher cost.
Early signs of this transition are already evident. Following the 2024 rebate cut, many lithium battery enterprises have actively adjusted their production strategies, reducing output to match demand and abandoning low-price bidding .2. This adjustment has helped rebalance supply and demand, with industry gross profit margins showing a marginal improvement in the third quarter of 2025 .1, indicating that the industry is gradually adapting to the policy-driven shift toward high-quality development.
Guidelines for Overseas Buyers: Strategies to Mitigate Risks and Secure Supplies
Given China's dominant position in the global lithium battery supply chain—especially in key markets such as Germany (the largest export destination, accounting for 19.1% of China's lithium battery exports in H1 2025), the US, and Southeast Asia.3—overseas buyers need to proactively adjust their strategies to cope with the policy changes. Here are four actionable recommendations:
1. Lock in Short-Term Orders to Secure the 9% Rebate Advantage: Take advantage of the three-month window between the policy announcement (January 2026) and the first phase implementation (April 2026) to place orders and ensure shipment before April 1. This will allow you to still benefit from the current 9% rebate, effectively reducing procurement costs.8. However, it is important to coordinate closely with suppliers to avoid delivery delays due to the potential "rush to export" surge in production and shipping demand.
2. Negotiate Long-Term Price Agreements with Suppliers
Engage in early negotiations with core Chinese lithium battery suppliers to sign long-term price agreements that account for the phased rebate cuts. Clarify how the cost increases resulting from the rebate reduction (3 percentage points in 2026 and a further 6 percentage points in 2027) will be shared between both parties. Long-term partnerships can provide more stability in pricing and supply, especially as manufacturers adjust to the new policy environment.
3. Diversify Supply Sources to Reduce Dependence: While China remains the primary global supplier, consider diversifying your supply chain by exploring alternative sources, such as regional manufacturers or Chinese battery enterprises with overseas production facilities. Many leading Chinese lithium battery companies, including CATL and BYD, have established factories in Europe (e.g., Hungary) and Southeast Asia .6, which can help mitigate risks related to export tax changes, trade barriers, and shipping disruptions.
4. Optimize Inventory Management and Demand Forecasting: Given the expected price increases in 2026 and 2027, adjust your inventory strategy to balance cost and storage risks. Conduct more accurate demand forecasting to avoid overstocking while ensuring adequate inventory to meet production needs during potential supply fluctuations. For high-volume buyers in the automotive and energy storage sectors, consider strategic inventory buildup during the 2026 buffer period to mitigate the impact of the full rebate cancellation in 2027.
Note: This article is based on official policy announcements and industry analysis as of January 2026. For the latest policy details, please refer to the official websites of China's Ministry of Finance and State Taxation Administration. For region-specific market insights (e.g., EU Battery Regulation compliance, US IRA-related requirements), additional due diligence is recommended.