The True Landed Cost of Sourcing from China
The quoted FOB price is only the start. A practical breakdown of what actually determines your landed cost when sourcing from China — import tariffs into your market, China's export VAT rebate, and the levers most overseas buyers leave on the table in negotiation.
The price you're quoted is not the price you pay
Overseas buyers routinely compare Chinese suppliers on the FOB quote alone. That is the single biggest costing mistake, because two suppliers quoting the same FOB can leave you with very different landed costs — and, just as importantly, the FOB itself is partly a function of tax mechanics the buyer can influence.
Landed cost has four moving parts: FOB price → export-side tax (China VAT rebate) → freight & insurance → import-side tax (your tariff + import VAT). Most buyers analyse the first and third and ignore the second and fourth. Here is how each works.
1. China's export VAT rebate — the lever buyers ignore
China levies 13% VAT domestically. When goods are exported, the state refunds part of that VAT to the exporter at a product-specific rebate rate (出口退税), ranging from 0% to the full 13%.
Why this matters to *you*, the buyer:
- A supplier whose product carries a full 13% rebate recovers all input VAT on export. That recovered cash is margin they can give back in the price — a well-run supplier on a 13% rebate can quote a lower net FOB than one on 0%.
- A product on a 0% rebate (often resource-, energy- or emissions-intensive goods, and categories Beijing wants to discourage exporting) means the VAT is a sunk cost baked into the price. The supplier cannot discount it away.
The practical move: know your product's rebate rate before you negotiate. If it is 13% and the supplier is not reflecting it, that is negotiating room. If it is 0%, stop expecting a price that assumes a rebate that does not exist. You can check the likely band and the official rate in our Compliance toolkit's Export VAT rebate tab.
A second-order point: when China *cuts* a rebate rate (a recurring policy tool for steel, aluminium and some chemicals), FOB prices in that category rise even with no change in the factory. If your category is rebate-sensitive, track the policy.
2. Import tariff into your market — often the largest single add-on
On arrival, your own country's import tariff applies to the customs value. Rates vary enormously by product and by trade agreement:
- A product at a 0% MFN line costs you nothing in duty; the same product at 15–25% can erase the entire reason you sourced from China rather than locally.
- Free-trade agreements and origin rules can drop the rate to zero — but only if you can document Chinese origin and meet the rule. Many buyers pay MFN rates on goods that would qualify for preferential treatment simply because they never filed.
Before committing to a Chinese source, model the tariff at *your* border, not just the factory gate. (Our toolkit shows China's MFN *import* tariff for the reverse direction — selling into China — and the same WITS data covers your market's rate on Chinese goods.)
3. Import VAT / GST in your market
Most markets also levy VAT or GST on the duty-inclusive value at import. It is usually recoverable for VAT-registered businesses, so it is a cash-flow item rather than a true cost — but for smaller or non-registered buyers it is real money, and it is calculated *on top of* the tariff, compounding it.
4. The parts everyone already counts
Freight, insurance, inspection, and financing are the visible costs buyers do model. The only caution: lock incoterms explicitly. "FOB" vs "EXW" vs "CIF" shifts who pays inland China haulage, export clearance and main freight — a quote is meaningless until the incoterm is fixed.
A simple landed-cost frame
For each candidate supplier, build the stack:
1. FOB (with incoterm fixed)
2. − implied rebate benefit — is the FOB consistent with the product's rebate rate?
3. + freight & insurance to your port
4. + import tariff at your border (check FTA eligibility)
5. + import VAT/GST (cash-flow if recoverable)
6. + inspection, financing, returns/quality buffer
Two suppliers with identical FOBs can diverge by double digits once steps 2 and 4 are in. The cheapest quote is frequently not the cheapest landed cost.
Bottom line
Sourcing decisions made on FOB alone are guesses. The export rebate tells you whether the price *can* come down; the import tariff at your border tells you whether the sourcing logic survives at all. Model both before you commit — they are public, checkable, and routinely worth more than the freight savings buyers obsess over. When the numbers are close or the stakes are high, a costed sourcing review pays for itself in the first order.