In the autumn of 2024, Chen — who runs a power-adapter factory in Dongguan — called his finance director and production manager into the meeting room. On the table sat two proposals: jinliao processing, or lailiao processing. The question had kept his electronics factory, with 120 million yuan in annual exports, tied up in knots for a full month.
Plenty of bosses doing processing trade have never actually worked out the real numbers between these two. Jinliao and lailiao are both "two-ends-overseas" arrangements — materials come in from abroad, finished goods go back out — but the logic of capital, tax, and compliance is completely different. Chen ended up choosing jinliao. In this article, I'll lay out his calculation step by step.
What actually separates the two
Lailiao processing, in plain words, is contract manufacturing: an overseas customer sends you the materials, you only earn a processing fee, and neither the materials nor the finished goods belong to you — under customs supervision, there is "no payment, no settlement." Jinliao processing is "buy-and-process": you use your own funds or foreign exchange to buy materials from abroad, process them, and export the goods — materials and finished products both belong to you.
The most intuitive difference: with lailiao, you earn a fixed processing fee on each order. With jinliao, you earn the margin, and how much depends on your negotiating power and cost control. For a factory like Chen's — with a spread of customers and its own supply-chain control — jinliao leaves far more room to maneuver.
The tax calculation he ran three times
Tax is the critical piece. Jinliao exports use the "exemption, credit, and refund" method: the export stage is exempt from VAT, and the input tax can be refunded. Lailiao, by contrast, is "no levy, no refund" — the export stage is not taxed, but the input tax you paid on auxiliary materials, utilities, and logistics is not refundable at all.
Chen had his finance team run the numbers: the factory buys domestic auxiliary materials and pays logistics every year, and the corresponding input VAT comes to about 2.6 million yuan. Under lailiao, all of that 2.6 million sinks to the bottom. Under jinliao, as long as the documents are complete and the refund procedures are proper, most of it comes back. That one item alone is a difference of over a million yuan a year.
But the jinliao refund has a hidden requirement: the gap between the refund rate and the levy rate has to be booked as cost. Chen's product has a 13% refund rate and a 13% levy rate — a zero gap — so this route is especially sweet for him. If the refund rate runs lower than the levy rate, jinliao's advantage shrinks and you have to recalculate.
Capital and compliance: two different ledgers
On capital, jinliao requires paying for materials up front, so the pressure is heavier. Chen's raw materials are imported chips and electrolytic capacitors, and a single order ties up 6 to 8 million yuan. He leans on bank credit lines and export bill advances to turn it over. Lailiao does not require paying for materials, but the flip side is that your lifeline sits in the customer's hands — the customer walks, the line stops.
On compliance, both arrangements are managed under customs handbooks, and jinliao additionally requires watching "unit consumption" and "domestic-sale tax make-up." Chen's factory got burned once: in 2023, leftover scrap from a jinliao batch was not handled through the proper domestic-sale tax procedure, and a customs audit hit him with a 180,000-yuan back tax and damaged the company's credit rating. Since then, he has kept a dedicated person just to manage handbook verification.
Chen's final call, and your checklist
After running those three ledgers, Chen made the call: jinliao. His reasons — a spread of customers, real bargaining power, matching refund and levy rates, and bank credit to back the capital. He kept a small lailiao handbook running in parallel, just for the two big customers who insist on lailiao terms, walking on two legs.
If you are stuck on the same choice, answer four questions first: Is your customer base spread out or concentrated? How big is the gap between the refund rate and the levy rate? Do you have the capital to cover materials? Can your compliance team handle handbook verification? Lay out those four answers and the choice mostly makes itself.
FAQ
Q: Can I run jinliao and lailiao at the same time?
A: Yes. Many factories run both handbooks in parallel, handling them separately by customer and order. The key is that each handbook's materials, finished goods, and unit consumption must be accounted for separately — no mixing.
Q: If I want to sell jinliao materials domestically, what paperwork is required?
A: You have to pay the customs duty and import-stage VAT, plus reapply for any required permits. Scrap and defective goods sold domestically also need to be declared with tax make-up. Don't count on luck — customs audits are meticulous.
Q: Does lailiao really mean zero capital outlay?
A: You don't pay for the materials, but labor, utilities, auxiliary materials, and logistics still come out of your pocket first — just lighter than jinliao. Don't mistake "no material payment" for "zero cost."
Q: Is there a simple rule of thumb for choosing?
A: If a customer specifies lailiao and the orders are steady, go lailiao. If your customers are spread out, you control the supply chain, and the refund rate matches the levy rate, go jinliao. When in doubt, work out the tax gap and the capital pressure first.