China to eliminate VAT rebate for PVC exports from April 1

China will eliminate the value-added tax export rebate for polyvinyl chloride, effective April 1, the Ministry of Finance and State Administration of Taxation announced Jan. 8.

This will prompt domestic producers and traders to accelerate shipments in the coming months as they seek to maximize exports under the current rebate structure ahead of higher export costs, several China-based market participants said.

The current VAT export rebate rate for PVC is typically 13%.

The policy change covers PVC under HS code 39041090, along with other products, with the applicable rebate rate determined by export dates specified on the customs declaration forms, according to the announcement.

Market participants expect the rebate elimination to create substantial headwinds for China's domestic PVC market while potentially reducing the country's structural overcapacity in the sector.

"Before April, [Chinese producers and traders] will rush to export, but the current focus is on how much volume can actually be absorbed by overseas demand," a China-based producer said, adding that attention is focused on "whether India and other countries have large purchase intentions."

"Now export inquiries have increased, with most coming from India, driven by concerns that prices will rise after China cancels the tax rebate on April 1," a China-based trader said.

Capacity rationalization

Beyond the immediate market disruption, market participants view the rebate elimination as part of broader government efforts to address domestic overcapacity and improve industry profitability through capacity rationalization. The policy is widely characterized as an "anti-involution" measure designed to eliminate inefficient, low-end capacity.

"After April, some carbide-based [PVC] manufacturers may shut down due to bigger losses. It's a positive policy for China's current oversupply situation," a second China-based trader said.

A second China-based producer estimated that "after April, export volumes are expected to decrease," while anticipating significant domestic price pressures. "The change will increase export costs, and domestic prices are estimated to fall a lot," the producer said.

The policy shift is expected to create divergent price dynamics between domestic yuan-denominated and export FOB pricing. "I think it's very bearish overall -- bullish for FOB pricing, bearish for yuan pricing," a third China-based trader said.

Participants expect the measure to phase out backward capacity over time, despite near-term challenges. "For PVC, canceling the export rebate may be part of domestic anti-involution policy, mainly to phase out low-end, low-quality capacity," a fourth China-based trader explained.

Looking at long-term implications, the same trader said: "The aim is to increase PVC prices and not allow low-price [PVC] exports. Anti-involution is about improving industry profits, increasing added value and efficiency; for competitive industries, domestic tax subsidies shouldn't benefit foreign consumers."

The first China-based producer said the policy aims to "promote industrial transformation, shifting from price competition to value creation."

Regional producers outside China anticipate mixed effects from the policy change.

"In the short term, accelerated exports before April 1 may increase supply and pressure [PVC] prices lower. After April 1, with the cancellation of the VAT rebate raises export costs, pushing PVC prices higher," a Southeast Asia-based producer said.

A Northeast Asia-based producer also anticipates prices to soften in the near term, adding that FOB China PVC prices remained firm as of Jan. 12.

Platts, part of S&P Global Energy, assessed ethylene-based PVC FOB China prices at $580/mt on Jan. 12, while carbide-based PVC FOB China prices were assessed at $575/mt, both stable day over day.