1 Analyzing Beijing’s dilemma with terminating photovoltaic export tax rebates
PRC adjusts export tax rebate policies for photovoltaic products
On Jan. 9, the PRC’s Ministry of Finance and the State Taxation Administration issued a notice adjusting export tax rebate policies for photovoltaic (PV) and related products.
- Effective April 1, 2026, value-added tax (VAT) export rebates for PV and related products will be abolished.
- From April 1, 2026 to Dec. 31, 2026, the VAT export rebate rate for battery products will be reduced from 9 percent to 6 percent.
- Beginning Jan. 1, 2027, VAT export rebates for battery products will also be eliminated.
On the same day, the China Photovoltaic Industry Association (CPIA) released a statement noting that Chinese PV products have faced increasingly intense and disorderly competition in overseas markets since 2024. The CPIA added that export prices have continued to decline, resulting in a pattern of “rising volumes but falling prices.” Furthermore, some companies, in the course of exporting, have not only engaged in low-price competition but have also converted export tax rebates into additional bargaining room for overseas buyers. As a result, fiscal funds originally intended to offset domestic VAT burdens have effectively been transferred to foreign purchasers during price negotiations.
The CPIA argued that Beijing’s earlier export tax rebate policy functioned, in practice, as a subsidy to overseas end markets. The CPIA added that Beijing’s earlier policy not only eroded the profitability of domestic firms, but also significantly increased the risk that China’s PV industry would face countervailing duty and anti-dumping investigations, thereby harming the overall interests and international image of China’s photovoltaic sector.
The CPIA further argued that a timely reduction or cancellation of export tax rebates for PV products would help overseas market prices return to more rational levels, reduce China’s exposure to trade frictions, and ease the fiscal burden on the state, enabling a more rational and efficient allocation of fiscal resources. Although adjusting export tax rebates is not the only way to fundamentally address the problem of “the externalization of involution” (內卷外化), over the long term it would help curb excessive declines in export prices and lower the likelihood of trade disputes.
Background of China’s PV industry development
The development of China’s PV industry can be divided into three key stages:
Stage One (2000–2011): Processing and assembly
During this period, China’s PV industry was in its embryonic stage and exhibited a very high degree of external dependence. Industrialization began in 2002 when Suntech (Wuxi) established its first 10 megawatt production line. At that time, both raw materials (polysilicon) and markets (primarily Europe) were dependent on imports and exports, respectively, and China was limited to undertaking the labor-intensive processing segment of the value chain.
Beijing implemented the “Renewable Energy Law” from Jan. 1, 2006 to boost the PV industry. However, the subsequent 2008 global financial crisis caused a sudden plunge in foreign demand, marking the first major setback for China’s PV industry.
Stage Two (2012–2017): Policy support and the explosion of the domestic market
In response to anti-dumping and countervailing duty investigations launched by Europe and the United States against Chinese PV products, the Chinese government pivoted toward developing the domestic market as a means of helping the PV industry thrive. In 2013, the State Council issued “Several Opinions on Promoting the Healthy Development of the Photovoltaic Industry,” which established a feed-in tariff subsidy system. Driven by large-scale government subsidies, China’s installed PV capacity quickly rose to become the largest in the world. The industry chain also began to extend upstream, with breakthroughs in polysilicon production technology that broke foreign monopolies.
Stage Three (2018–2024): Policy cooling and grid parity
The CCP authorities began spearheading a process of “de-subsidization” due to widening funding gaps in government subsidies and unchecked capacity expansion in the PV industry. On May 31, 2018, Beijing introduced a new policy that drastically cut subsidies, forcing enterprises to pursue cost reduction and technological transformation. After 2021, the domestic market officially entered the era of “grid parity” (subsidy-free electricity) and no longer relied on central fiscal subsidies. As large amounts of capital poured into the sector, severe structural overcapacity emerged from 2023 onward, causing module prices to drop below cost levels.
Our take
1. The CCP authorities’ recent adjustments to their PV export tax rebate policies are the most impactful to date. Coming during the Sino-U.S. trade truce period after the Busan agreement in October 2025, the shift in policy suggests that Beijing has shifted its focus from fighting “external trade wars” to stemming “internal fiscal bleeding.”
Over the past decade, China has built more than 80 percent of the world’s PV manufacturing capacity through a combination of a full 13 percent export VAT rebate and local government subsidies, driving global module prices down by roughly 90 percent. However, China’s massive PV capacity expansion in 2023 and 2024 pushed supply far beyond global demand and triggered severe industry-wide “involution” (cutthroat internal competition). By the first three quarters of 2025, leading firms across the sector collectively reported losses running into tens of billions of yuan.
PV companies were once major taxpayers in provinces such as Jiangsu, Anhui, and Jiangxi. As profits evaporated, however, these firms have shifted from being net taxpayers to becoming “fiscal consumers,” relying on tax rebates to sustain cash flow.
2. Beijing’s decision to “wean” the PV industry (ending subsidies) during the current lull in U.S.-China trade tensions is more likely driven by its inability to sustain ineffective subsidies in 2026 rather than direct pressure from trade friction.
On the surface, Beijing’s cancellation of PV export tax rebates might appear to be a strategic retreat in the U.S.-China trade conflict. Given the Trump administration’s preference for taking a hard line on trade with China and repeated criticism of state subsidies, the CCP authorities could prefer to proactively withdraw the rebate rather than see those funds offset by future U.S. tariffs. While this would inflict short-term pain on the PV industry, the move would preserve the central government’s fiscal resources for more strategically significant sectors like semiconductors or artificial intelligence.
A review of financial reports and tax data from PV firms, however, suggests that fiscal pressure is the more likely reason driving Beijing’s revision to the export tax rebate policy. According to financial reports for the first three quarters of 2025, JinkoSolar — one of the “big four” global PV module manufacturers — received tax rebates totaling 2.23 billion yuan, far exceeding the 860 million yuan it paid in taxes, resulting in a net negative fiscal contribution.
JinkoSolar is regarded as the Chinese PV industry’s most representative “globalization benchmark” and an industry leader in technological transition. By the end of 2025, it had repeatedly ranked first worldwide in module shipments, with cumulative shipments surpassing 200 GW, meaning that roughly one out of every eight to ten solar panels installed globally comes from JinkoSolar. In its most profitable and fastest-growing year in 2023, the company recorded operating revenue of 118.682 billion yuan (up 43.55 percent year-on-year) and net profit attributable to shareholders of 7.486 billion yuan (up 154.97 percent), while JinkoSolar’s actual taxes paid amounted to approximately 2.351 billion yuan.
JinkoSolar’s current losses and those more broadly in the industry indicate that PV companies are not only failing to generate profit, but are also incurring no corporate tax liabilities (with losses carried forward to offset future profits). Under such conditions, government export tax rebates become a pure fiscal drain, ultimately subsidizing overseas consumers through lower prices. Against the backdrop of even tighter local government finances expected in 2026 compared with 2025, it would appear that Beijing is looking to plug a “fiscal black hole” by abolishing PV export tax rebates.
3. The termination of subsidies by Beijing is set to intensify “involution” within the PV industry. Once the policy takes effect in April, it could trigger large-scale shakeouts and a hard landing for the industry.
The “golden era” of China’s PV industry was largely concentrated between 2021 and late 2022. Known within the sector as the “Age of Discovery,” this was a time when companies not only reaped historic, massive profits but also held absolute pricing power amidst the global green energy transition. PV prices surged during the aforementioned period due to post-pandemic supply chain disruptions, the energy crisis triggered by the Russia-Ukraine war (which caused a surge in European demand), and a severe shortage of silicon materials. For instance, the price of polysilicon soared during the 2021-2022 period from less than 100,000 yuan per ton to over 300,000 yuan per ton, an increase of more than 300 percent. Module prices hovered around 1.8 to 2.1 yuan per watt (astronomical pricing compared to the 0.7 to 0.8 yuan per watt seen in 2024–2025), with demand far outstripping supply. Industry leaders like Tongwei and Longi reported net profits in the tens of billions of yuan in 2022, with staggering gross margins. Many silicon material firms earned profits in a single year that matched their total earnings from the previous decade.
China’s PV boom years also attracted a flood of cross-sector entrants (from industries like real estate and textiles) into the PV space. Many companies with zero technical background entered at the market peak in 2022, only to be the first casualties during the 2024 shakeout. Once past the boom years, however, even industry giants had to cut their workforce by 20 percent to 30 percent just to stay in business.
Chinese PV firms have generally relied on tax rebates and subsidies to stay afloat, hoping to outlast their rivals and eventually monopolize the market once competitors fall. Currently, the average net profit margin for Chinese PV firms in overseas markets is only about 3 percent to 5 percent. Beijing’s elimination of the 13 percent export tax rebate means that if companies do not raise prices, their exports will shift from “razor-thin margins” to “massive losses.” However, if they raise prices by 10 percent to 13 percent to offset the loss of the rebate, the price gap between them and local manufacturers in Europe and the U.S. will narrow significantly.
Against the backdrop of the Trump administration potentially imposing even higher tariffs on Chinese goods should the Sino-U.S. trade truce wane, small and medium-sized enterprises lacking overseas production capacity stand to lose their orders entirely. A conservative estimate suggests that 30 percent to 40 percent of SMEs — particularly those lacking scale and facing fragile capital chains — may face bankruptcy. In this currently hypothetical scenario, Beijing’s cancellation of tax rebates could amount to a government-led wave of brutal “capacity reduction” and a “hard landing” for the industry as a whole.
4. A “hard landing” for the PV industry could rapidly transmit the industrial crisis into local financial systems and the employment market.
Local banks are at risk in the event of a PV industry crisis. In PV industry clusters such as Chuzhou in Anhui Province and Yancheng in Jiangsu Province, local governments provided land and financing to attract solar manufacturers. Consequently, local banks potentially have on their books massive volumes of loans collateralized by obsolete production lines. In terms of taxation, local government support policies for the PV industry have also introduced significant risks to regional banking systems. While VAT is shared between the central and local governments (with local authorities typically receiving 50 percent), the tax contribution from a single leading factory in counties and cities in “solar powerhouse” provinces like Jiangsu, Zhejiang, and Anhui can account for 20 percent to 30 percent of total local fiscal revenue.
During the PV industry’s boom period, local governments often promised incentives such as “five years of tax exemption followed by five years of half-reduction” or “levy first, refund later” to attract investment. They even implemented “refund before audit” policies, where the government would return portions of tax payments under the guise of “industrial support funds.” Some local governments went as far as coordinating with local commercial banks to allow enterprises to use “expected export tax refunds” as collateral, securing loans for 80 percent to 90 percent of the refund value. For major local firms, governments might also inject liquidity through state-owned capital investment platforms (LGFVs) in the form of “procurement payments” or “prepayments” before tax refunds were officially processed. This ensured these large enterprises could cover payroll and utilities, preventing a sudden collapse due to cash flow disruptions while waiting for national tax refunds.
With the termination of the export tax rebate policy in 2026, the “financial lifeline” between local governments and PV enterprises as described above will be forcibly severed. Tax refunds and liquidity advances previously fronted by local governments or banks may become unrecoverable as a wave of corporate bankruptcies hits. This is likely to trigger an “asset impairment storm,” posing a direct threat to regional financial stability.
The unemployment situation in China will also worsen in a PV industry crisis. The entire PV supply chain involves approximately 3.5 million to 4 million jobs. If 30 percent to 40 percent of these enterprises fail, it will lead to hundreds of thousands of layoffs. Against the backdrop of China’s struggle to escape deflation in 2026, a surge in unemployment will further weaken consumption and deepen the deflationary spiral.
In sum, Beijing’s cancellation of export tax rebates for the PV industry marks the end of its “hormone-driven growth phase.” Beijing’s policy shift does not indicate that the industry has matured, but rather is likely a desperate choice necessitated by fiscal exhaustion and geopolitical pressure. For “zombie enterprises” that rely on subsidies for survival, April 1, 2026 will serve as their collective day of reckoning. What remains for local governments and banks will be a colossal task of debt restructuring and the daunting challenge of maintaining social stability as the PV industry struggles to stay afloat.
2 Early analysis of what trouble in Iran could mean for the PRC
Iran saw huge anti-government protests in Tehran and other cities on Jan. 8 and Jan. 9, according to videos circulating online. Protesters could be heard in video footage calling for the ouster of Supreme Leader Ayatollah Ali Khamenei, and in some quarters, for the return of Reza Pahlavi, the exiled son of the late former shah Mohammad Reza Pahlavi. On those days, Iran also saw a complete internet blackout and telephone disruptions, likely due to interference from the Iranian government according to Cloudflare and NetBlocks.
The protests started near the end of December over the collapse of the Iranian currency, rising inflation, and mounting economic hardship. According to various human rights organizations, at least 28 to 65 protesters have been killed so far (including children), with dozens more injured and over 2,300 arrests.
On Jan. 9, U.S. President Donald Trump said, “Iran’s in big trouble. It looks to me that the people are taking over certain cities that nobody thought were really possible just a few weeks ago.” Trump also said that Iran’s leaders “better not start shooting because we’ll start shooting too. If they start killing people like they have in the past, we will get involved. That doesn’t mean boots on the ground, but it means hitting them very, very hard where it hurts.”
Our take
1. The ongoing mass protests in Iran represent a serious challenge to the Iranian regime under Supreme Leader Ali Khamenei. Unlike in past movements that were focused on specific triggers and groups (electoral fraud, women’s rights, etc.) and were concentrated in urban centers, the current wave of nationwide demonstrations was sparked by a fiscal crisis that crossed class lines and drew protesters from diverse demographics — bazaar merchants (a historically regime-loyal constituency; the Shah of Iran’s authority collapsed in 1979 when he lost bazaar support), workers, pensioners, ethnic minorities (e.g., Kurds in the west), students, and Gen Z. The protesters are also directly calling for Khamenei’s ouster with chants of “Death to Khamenei” heard in the streets.
It is still unclear whether the current protests will lead to a revolution and regime change in Iran. There are favorable conditions for regime collapse, including economic trouble, popular anger at injustices, waning confidence in the regime’s ability to secure the people and nation’s interests (including failing to contest Israeli and American airstrikes in 2025), and a fractured elite. Khamenei himself is 86 years old and is visibly frail. However, the regime’s security forces appear to still be loyal to Khamenei, as well as the security and clerical elites. Meanwhile, opposition forces inside Iran lack leadership and organizational depth, and Reza Pahlavi does not appear to have real influence or popular support inside Iran.
The Khamenei regime could conceivably quell the current protests, step up suppression, and cling to power. However, the regime’s legitimacy will be undoubtedly eroded further and Iranians will become more radicalized to take action at future opportunities. Put another way, while the regime may or may not be felled by the latest round of protests, its pulse is clearly fading.
Should the Khamenei regime fail with its suppression and security forces abandon the Ayatollah, the current protests could bring about the end of the Islamic Republic. What happens next is murky, although the Trump administration would likely try to arrange for leaders favorable to the United States to take office.
2. An Iranian regime in crisis or one that has been toppled and replaced by a successful pro-Western government presents additional dilemmas for the CCP regime. Beijing will have to contend with crises across three fronts — economics, geopolitics, and ideology.
Economics
Ending the ‘energy loop’: For years, Beijing has used Iran as a testing ground for cross-border renminbi settlement, particularly in the energy sector. By exploiting sanction loopholes, the PRC established a closed-loop system that bypassed the dollar. Currently, China imports approximately 1.5 million barrels of crude oil per day from Iran — often through third-party re-exports to evade sanctions — amounting to an annual trade volume of roughly 300 billion yuan. Beijing’s energy exploits could come under risk should a pro-U.S. government replace the Khamenei regime.
‘Teapot’ refiner crisis: Independent Chinese refiners (“teapots”), primarily in Shandong, rely heavily on Iranian oil, which is sold at a $7 to $10 discount per barrel. Should a new Iranian government end its oil deals with the PRC and bring Iran back to the international market, China’s annual energy procurement costs could surge by $4 billion to $6 billion, potentially pushing these independent refiners toward bankruptcy.
Currency internationalization setback: Should a pro-Western government return Iran to the SWIFT system and restore settlement in USD or Euros, the RMB will lose its most stable and symbolic energy application scenario. This will deal a substantive blow to Beijing’s narrative of “RMB internationalization.”
Asset write-downs: Belt and Road–related investments could fall victim to regime change in Iran. In 2021, China and Iran signed a “25-Year Comprehensive Strategic Partnership,” under which the PRC pledged up to $400 billion in potential investments. Historically, regime change is often accompanied by a review — or even repudiation — of agreements signed by the previous government. If a new Iranian administration were to reassess projects on grounds of “lack of transparency” or “corruption concerns,” tens of billions of dollars of Chinese investment in energy, transport, and logistics corridors could quickly turn into high-risk assets.
Geopolitics
Regime change in Iran could constitute a geopolitical nightmare for the CCP. In Beijing’s strategic considerations, Iran is not merely an economic partner but also a key “bridgehead” used to divert U.S. resources and attention (particularly Iran’s role in sustaining conflicts in the Middle East). The downfall of the Islamic Republic, however, would nullify years of the CCP’s carefully constructed strategic buffering against the United States.
Supply chain disruptions: Iran’s Shahed drones and related military technologies — often utilizing Chinese-sourced components — are vital to the Russian war effort in Ukraine. A shift in Tehran’s allegiance would sever this “gray supply chain,” increasing military pressure on Russia and eliminating a node that indirectly exhausts Western resources.
Pivot to the Indo-Pacific: If Iran ceases to support proxies like Hamas and Hezbollah, conflicts in the Middle East are likely to see reduced intensity and even decline. This would allow Washington to reallocate more military and intelligence assets toward the Indo-Pacific to deter a PRC invasion of Taiwan and other “gray zone” operations. Beijing would face intensified pressure across the First Island Chain (Japan, Korea, Taiwan, Philippines, and Australia), effectively shrinking its strategic buffer.
The ‘Axis of Authoritarianism” retreats: There is a growing narrative of “authoritarian retreat” in the wake of the collapse of the Assad regime in Syria in December 2024 and the capture of Nicolás Maduro in January 2026. Regime collapse in Iran would only reinforce this perceived trend and potentially weaken the CCP’s influence in South America, the Middle East, and even Eastern Europe.
Ideology
The CCP will likely see the deepest impact on the ideology and narrative fronts in the event of a greatly weakened or collapsed Iranian regime. A successful post-theocratic Iran could potentially undermine the CCP’s longstanding narrative of “authoritarian stability,” and by extension, its governing legitimacy.
A counter-example to CCP propaganda: For decades, Beijing has argued that strongman rule is necessary for social stability and that democratic transitions lead only to chaos. If Iran establishes a functioning government post-Khamenei and revives its economy, then the CCP’s narratives such as “Without the CCP, there is no New China,” “Without the state, there is no family,” or “Stability overrides everything” could face strong pushback and ridicule in the popular Chinese discourse.
The ‘demonstration effect’: Both China and Iran share histories as ancient civilizations that have been subjected to tight surveillance, censorship, and censorship in the post-war era. A grassroots movement toppling a theocracy in Iran could reignite memories of China’s 2022 “White Paper movement” and inspire the Chinese people to adopt or innovate forms of nonviolent resistance. For one particularly visible instance, a man projected anti-CCP slogans onto the exterior wall of a building in Chongqing University Town, a protest seen by thousands. The nearly three decade-long “Tuidang” movement started by Falun Gong practitioners that encourages individuals to renounce the CCP and its affiliated organizations could also gain steam (the global “Tuidang” center claims over 450 million withdrawals to date) and become more mainstream. As the Chinese people suffer more economic hardships and the CCP loses legitimacy, conditions in China could develop to the point where even a small incident could ignite nationwide challenges to Party rule.
The synergy of risks: In a lengthy essay published in July 2022, Qu Qingshan, dean of the Central Party History and Documentation Research Institute, warned that risks often do not exist in isolation and are likely to “overlap, intertwine, transform, interact and form a risk complex.” This, he added, results in “small risks developing into large risks,” “external risks turning into internal risks,” and “economic risks transforming into political risks.” Regime change in Iran or a weakened Iranian regime could see “external risks turning into internal risks” for the CCP, while economic risks could transform into political risks as local governments across China face fiscal exhaustion and growing public dissatisfaction.
The ripple effects of regime change in Iran and the successes of a new Iranian government would severely test Beijing’s resilience. While military and economic losses can be mitigated through diplomatic maneuvering, the undermining of propaganda and ideological narratives may be an invisible crisis from which the CCP cannot recover.
