China’s Foreign Trade Policy Adjustment: Moving Away from Low-Price Competition and Towards High-Value Investment

In January 2026, high-level officials conducted their first research trip to Guangdong, a major export province. However, instead of receiving further support for stabilizing exports, the province received a key signal of expanding imports and promoting a balance between imports and exports. Following this, export tax rebates for photovoltaic products were directly cancelled, and tax rebates for batteries were cut from 9% to 6%, and will be eliminated next year. It’s worth noting that in the first 11 months of 2025, my country’s export tax rebates reached a staggering 1.9 trillion yuan. This series of actions is no coincidence, but rather a proactive effort to put the brakes on the “unbelievable trade surplus.” The underlying logic is quite straightforward: my country no longer wants to exchange low prices for exports. The reason why my country’s average export price has remained low in recent years lies in the value gap in intermediate goods, whose proportion has soared from one-third at the beginning of the century to nearly half. While my country appears to be a global supply chain giant, it’s actually more like a “laborer,” with pitifully thin profit margins. Its highly concentrated production capacity also makes it a target of suspicion from Europe and the US, frequently leading to accusations of “dumping.” This is especially true in the photovoltaic industry, where my country controls the entire process from polysilicon to modules, holding over 80% to 90% of the global market share, yet it’s embroiled in a vicious price war. Export tax rebates, intended to avoid double taxation, have become a “disguised subsidy” here: government funds haven’t gone into companies’ pockets or boosted employee salaries; instead, they’ve been given to overseas customers through price reductions. Seeing that “export prices are lower than domestic prices,” Europe and the US naturally seize upon the “dumping” accusation and launch a fierce attack. Instead of passively enduring criticism, it’s better to proactively break the deadlock. This policy is a case of “choosing the lesser of two evils”: even if companies are temporarily double-taxed, the export floor price will be raised, forcing overseas consumers to pay for the higher prices. Since photovoltaic production capacity is highly monopolistic, tax rebates will be eliminated in one step; since batteries still need to compete with Japan and South Korea, the process will be implemented in stages with sufficient buffer. Essentially, this is using administrative means to end the practice of “the government paying for the world’s production,” and more importantly, to reclaim pricing power. Even more drastic is the elimination of tax rebates for a large number of energy-intensive, low-tech intermediate goods. The global supply chain cannot bypass Chinese silicon wafers and glass, which means the entire industry chain is being forced to acknowledge the true environmental and resource costs of Chinese manufacturing. The impact on competitive mid-range brands is minimal, but those companies that rely on low-price assembly for survival only have three paths left: move upstream to produce core components, move downstream to build brands and earn premiums, or move overseas to assemble goods and avoid costs. In short, these companies will become a “necessary cost” for industrial upgrading. This adjustment is not a leap from “subsidizing production to subsidizing consumption,” but an inevitable choice under an unbalanced economic situation. Given the current limited monetary space, there are essentially three possible macroeconomic directions: a gradual appreciation under a prudent policy, relying on industrial upgrading to create space, at the cost of sluggish growth and a large gap between macro and micro levels, somewhat resembling a “mild Japanization” approach; forced aggressive easing, relying on fiscal monetization and monetary stimulus to stabilize growth, but risking inflation and RMB depreciation; and a hard-line approach forcing reforms, resulting in severe short-term pain, with the RMB potentially depreciating initially before appreciating. Current actions clearly indicate the first option is the primary one, with the second serving as a precise supplement. Ultimately, this round of adjustments to trade, exchange rates, and industrial policies answers one core question: should the institutional and distributional mechanisms now absorb more of the imbalance costs previously borne by enterprises, supply chains, and exchange rates? Saying goodbye to low-price competition, vying for pricing power, and forcing industrial upgrading is a drastic move, but it’s also an inevitable battle for China to move from “world factory” to “value capital.” In the future, there is no middle ground—either break through through upgrading or be eliminated by clinging to the old ways.