Changes in China Vape Supply Chain After Zero Export Tax Rebate

A survival centered vape industrial reshaping is being fully launched due to the cancellation of China’s export tax rebate

The Chinese vape industry is standing at a critical adjustment point. According to the policy, starting from April 1, 2026, China will cancel the original 13% export value-added tax rebate for vape products. This change is having a significant impact on the vape manufacturing industry and its supply chain system centered in Shenzhen. Several industry chain insiders have stated that the withdrawal of tax rebate policies is driving manufacturers to reassess their pricing system, order structure, and production capacity layout in the context of limited profit margins. The competition logic in the industry is also shifting from relying on policy buffers and price advantages to a survival direction centered on cash flow, compliance capabilities, and multi-point layout.
Reference: China Will Cancel The Value-Added Tax Export Rebate For Vape

China cancels export tax rebate, putting pressure on vape manufacturing and entering a survival test period

On January 9, 2026, the Ministry of Finance and the State Administration of Taxation jointly issued an export tax rebate adjustment announcement, clarifying the adjustment of value-added tax rebate policies for some export products. According to the announcement, relevant policies will be officially implemented from April 1, 2026, and the export tax rebate rate for some products will be directly adjusted to zero.

Core points:
• China officially cancels the export tax rebate for vapes, and the manufacturing end enters a cost and risk environment without policy buffering. Vapes have been explicitly included in the zero tolerance list for export tax refunds, and the core manufacturing and component codes are synchronously applied, which means the era of offsetting costs with tax refunds is over.
• The most direct impact falls on the OEM manufacturing process, with factories lacking differentiation capabilities bearing the brunt. The industry generally has a profit margin of about 10%, and previously relied heavily on 13% tax refunds to maintain cash flow. The withdrawal of tax refunds has forced the manufacturing side to raise prices, recalculate order structures, and accelerate capacity reduction.
• Costs are being transmitted along the industrial chain, while driving a significant acceleration in manufacturing going global. Manufacturing, upstream supply chain, brand, and channel synchronization are facing repricing, with Southeast Asia and the United States becoming key layout directions. Going global has shifted from a long-term option to a realistic path.
• This is not a single policy shock, but a round of industrial reshaping under the combination of global regulation and cost conditions. Against the backdrop of China’s regulatory and fiscal adjustments, coupled with the tightening of consumer country regulations, the competitive logic of vape manufacturer is shifting from expansion to screening based on survival capabilities.

Pressure on vape factories, transmission of manufacturing costs, increase in sales prices, and acceleration of manufacturing going global

In the future, everyone will stop malicious competition

The profitability of such factories is already extremely limited. Currently, the normalized profit level of vape factory is roughly around 10%, and the 13% export tax rebate has become an important support for maintaining operations. Some manufacturers have pointed out that for contract manufacturers with already low profit margins, the amount of tax refunds has already exceeded all profits in their manufacturing process, so resetting the tax refund to zero is equivalent to directly withdrawing their financial buffer for survival.
In short, most contract manufacturers rely on this 13% tax rebate to barely extend their lives, “said a interviewed manufacturer.
After zero tax refunds, price increases have become almost the only option for contract manufacturers. But the problem is that not all companies’ price increases can be accepted by the market. Multiple interviewees mentioned that in the absence of differentiated products and bargaining power, some manufacturing companies find it difficult to fully transfer costs downstream.
This differentiation is being seen as an accelerated screening process. Manufacturers have judged that in the current policy environment, manufacturing companies without product barriers will be the first to bear the brunt, and some factories will have to exit the market. In fact, before the official introduction of the tax rebate policy, there were already cases of factory bankruptcy, restructuring, transfer or exit in the Shenzhen vape manufacturing cluster.

Vape manufacturing go to overseas will be an accelerated option

While the cost structure is being recalculated, manufacturing relocation is shifting from a ‘long-term option’ to a more urgent practical issue.
Several industry insiders have mentioned that Southeast Asia, especially Indonesia, is becoming a frequently mentioned direction in discussions about manufacturing going global. A logistics company stated that they have started laying out logistics routes from Indonesia to multiple destination countries around the world in 2025, and this business has been operating for over a year and maintaining growth.
In the company’s calculations, the cost gap between Chinese and Indonesian manufacturing is rapidly narrowing after the cancellation of the 13% tax rebate. With the expansion of shipment scale, Indonesia’s export logistics is expected to upgrade from the previous “consolidated passenger aircraft” mode to a cargo mode of whole machine charter flights, and its logistics costs will also rapidly decrease accordingly.
Enterprises with existing overseas production capacity layout have a more complex attitude towards this change. A manufacturing company with a factory in Malaysia believes that the advantages of its overseas factories are emerging, but the evaluation criteria are not limited to tax refunds, but also include changes in the Chinese yuan exchange rate and the continuous cost pressure of key raw materials such as batteries.
Another manufacturer that has already established automated production capacity in the United States believes that the cancellation of tax refunds will indeed narrow the cost gap between Chinese and American manufacturing, but “it only narrows a little bit” and there is still a distance to truly level it off. In his judgment, the more critical variables at present are not costs, but inventory pressure and customs enforcement intensity in the US market.
When my machine will start depends on when the US market is out of stock, “he said.” If Chinese manufacturing can continue to smoothly enter the gray market, it will be difficult for American domestic manufacturing to truly be competitive. ”
Therefore, e-liquid manufacturing companies are also discussing the issue of capacity relocation. A e-liquid company stated that its decision to relocate is not due to this tax refund adjustment, but rather the result of a combination of domestic and foreign regulatory policies in the past period, and its overseas layout is actually being promoted.
Overall, whether it is vapes, e-liquids, or nicotine pouches with clearer regulatory paths recently, companies are becoming more proactive in relocating production capacity, with destinations concentrated in Southeast Asia, the United States, and the Middle East.