China: Investing

FDI in Figures

According to the World Investment Report 2024 published by UNCTAD, FDI inflows into China decreased by 13.6% year-on-year in 2023, totalling USD 163.2 billion. Nevertheless, the country was still the second-largest FDI recipient in the world, accounting for 21% of global FDI. At the end of the same period, the total stock of inward FDI stood at USD 3.66 trillion. China is also the third-largest investor worldwide, with a stock of outward FDI estimated at USD 2.94 trillion. Among the top multinationals, the largest manufacturing investors in China include Hon Hai Precision Industry (Taiwan), BASF (Germany), and car manufacturers like Toyota (Japan), Volkswagen and BMW (Germany), and Samsung Electronics (South Korea). These companies have long maintained significant manufacturing operations in China. However, since 2019, they've reduced greenfield investments in favour of partnerships with local manufacturers, particularly in the EV market. Hon Hai and Samsung have reassessed their manufacturing footprint in China due to trade tensions. A large portion of their high-tech products, like chips and electronics, are produced in China and exported to the U.S. Hon Hai cut its greenfield projects in China from 23 to 6, while Samsung reduced its from 9 to 1. Both companies are now investing in new facilities in their home markets and countries like Vietnam, India, and Mexico. Official governmental data show that, in 2024, China saw 59,080 new foreign-invested enterprises, a 9.9% increase from the previous year. However, actual FDI utilization fell 27.1%, totalling CNY 826.25 billion (USD 115.56 billion). The manufacturing sector received CNY 221.21 billion (USD 30.85 billion), while the service sector attracted CNY 584.56 billion (USD 81.47 billion). High-tech manufacturing led high-tech sectors with CNY 96.29 billion (USD 13.42 billion), making up 11.7% of total FDI. Notable growth occurred in medical instruments (+98.7%), professional technical services (+40.8%), and computer and office equipment (+21.9%). Among source countries, Spain saw the largest increase in investment (+130.8%), followed by Singapore (+10.8%), Germany (+2.2%), and Switzerland (+1%).

In recent years, China has made significant improvements across various subcomponents, from streamlining the process for starting a business to enhancing electricity access and simplifying construction permit procedures. The country has implemented a series of reforms aimed at improving the overall business regulatory environment. These reforms primarily focus on improving the efficiency of business processes, including tax cuts, tariff reductions, and lowering barriers for foreign investors. To attract more foreign investment, China has introduced mechanisms to improve the implementation of major foreign investment projects, reduce import tariffs, streamline customs clearance, and establish an online filing system to regulate FDI. With a large pool of employees and potential partners eager to innovate, China remains an appealing base for low-cost production, making it an attractive market for investors. However, certain factors continue to pose challenges to foreign investment, including a lack of transparency, legal uncertainty, weak intellectual property rights protection, corruption, and protectionist policies that favour local businesses. The revised investment screening mechanism under the Measures on Security Reviews on Foreign Investments, which came into effect on January 18, 2021, was implemented without a public comment period or prior consultation with the business community. This move has drawn criticism from foreign investors, who raised concerns about the broad scope of the new rules, the absence of a threshold for triggering reviews, and the inclusion of greenfield investments—an approach that deviates from practices in many other countries. Furthermore, the introduction of guidance on Neutralizing Extra-Territorial Application of Unjustified Foreign Legislation Measures, similar to "blocking statutes" in other markets, has heightened concerns about navigating the complex legal landscape and complying with both host-country regulations and Chinese laws. Foreign investors have expressed frustration over national security-related legislation, which is increasingly seen as restricting market access in China. Additionally, on 1 November 2024, China issued revised regulations for foreign investment in its listed companies, lowering the minimum overseas assets requirement for strategic investors from USD 100 million to USD 50 million. Finally, the country ranks 11th among the 133 economies on the Global Innovation Index 2024 and 151st out of 184 on the latest Index of Economic Freedom. It also ranks 76th/180 on the 2024 Corruption Perception Index.

What to consider if you invest in China

Protection of Foreign Investment

Procedures Relative to Foreign Investment

Freedom of Establishment

The Foreign Investment Law of the People's Republic of China implements a “pre-establishment national treatment” plus “negative list management” system for foreign investment. “Pre-establishment national treatment” refers to the treatment given to foreign investors and their investments with regard to market access, which may not be less favourable than that given to their domestic investors and their investments. The “negative list” refers to the special administrative measures for the access of foreign investment in specific fields, which will be issued or approved for issue by the State Council. The Law provides that the state grant national treatment to foreign investment that are not included in the negative list.

Acquisition of Holdings

The acquisition of majority interest in a local company is authorised in China. M&A activities are subject to different regulations depending on whether the company is a public, a non-listed public company or foreign.

Obligation to Declare

The China International Investment Promotion Agency facilitates the distribution of information on necessary authorisations for establishing a business in the country. All proposed foreign investment projects in China must be submitted for 'verification' and approval to the National Development and Reform Commission (NDRC) or to provincial or local Development and Reform Commissions (depending on the sector and value of the investment.

Competent Organisation For the Declaration

National Development and Reform Commission (NDRC)

Requests For Specific Authorisations

Business plans must be submitted for approval to competent authorities prior to the beginning of business activity. If a foreign investor intends to establish a foreign-funded enterprise by merging a domestic enterprise in accordance with these provisions, he/she shall be subject to the approval of the “examination and approval organ” and modify the registration or go through the establishment registration in the “registration administrative organ”. “Examination and approval organ” refers to the Ministry of Commerce. The term “registration administrative organ” refers to the State Administration for Industry and Commerce (SAIC) or its authorized local administrations for industry and commerce. Chinese State-Owned Enterprises are often the targets of foreign investors. Although, it is important to note that additional rules apply to the purchase of State-Owned Enterprises by foreign investors in China. Greenfield investment projects must also seek approval from China's Environmental Protection Ministry and its Ministry of Land Resources.

Office Real Estate and Land Ownership

Possible Temporary Solutions

Rental and Business center. 

The Possibility of Buying Land and Industrial and Commercial Buildings

Foreigners are allowed to buy their property only after having worked or studied in China for at least one year.  They are only entitled to own one property in China and it must only be used for residential purposes.  Commercial or industrial property can only be purchased after a company has been incorporated in China.

Risk of Expropriation

The risk of expropriation is high. Article 20 of the Foreign Investment Law of the People's Republic of China stipulates that the government shall not expropriate investments made by foreign investors. Only in special circumstances (national security and obstacles to large civil engineering projects), the State may expropriate or requisition an investment made by foreign investors for public interest in accordance with the law. Such expropriation or requisition shall be carried out in accordance with the procedures of law and fair and reasonable compensation shall be given in a timely manner.

Investment Aid

Forms of Aid

Foreign investors enjoy corporate tax reductions, exemptions of tax on dividends repatriated during a certain period and other tax advantages. Moreover, foreign direct investment incentives include packages of reduced income taxes, resource and land use fees, and import/export duties, as well as priority treatment in obtaining basic infrastructure services, streamlined Government approvals, and funding support for start-ups. The Ministry of Commerce (MOFCOM) can be contacted for any information concerning opportunities in China.

According to the Notice on Implementing the Policy of Inclusive Tax Relief for Small and Micro Enterprises, published by the Ministry of Finance in January 2019, China expanded existing preferential policies for small and low-profit enterprises. Companies with annual taxable income below RMB 1 million (US$147,290) per year can benefit from a preferential corporate income tax (CIT) rate of 20 per cent, they are only taxed on 25 per cent of their income, while the remaining 75 per cent is tax-free.

Privileged Domains

China encourages foreign investment primarily in high technology, clean energy and export-oriented sectors.

Privileged Geographical Zones

China's Economic Development Zones (EDZs) are areas with preferential trade policies which differ from those governing the country as a whole. EDZs provide a wide range of incentives for FDI, which vary according to the EDZ specification. Companies operating in EDZs can expect, among other incentives, a higher level of autonomy over their operations, a variety of tax exemptions, subsidies for land and buildings and preferential employment policies.

Free-trade zones

In China there are many special trade zones. These special zones provide exceptions to the standard customs procedures and allow tax exemptions or tax incentives to attract overseas investments. They are primarily the 5 special economic zones and the 14 coastal cities. The special zones are Shenzhen (at the border of Hong-Kong SAR), Zhuhaï (close to Macau SAR), Shantou, Xiamen (vis-à-vis Taiwan, China) and the island of Hainan. They were selected because they were completely under-developed.

The 14 coastal cities are Dalian (in the province of Liaonong), Shanghai, Ningbo, Wenzhou (in the province of Zhejiang), Fuzhou (in the province of Fujian), Guangzhou, Zhanjiang (in the province of Guangdong), Beihai (in the autonomous region of Guangxi Zhuang), Tianjin, Yantai, Qingdao (in the province of Shandong) and Lianyungang, Nantong (in the province of Jiangsu). For the past few years, other cities have also been regarded as coastal towns profiting from the same status. Unlike the 5 special zones, these cities were not underdeveloped, but key industrial centres in China. Overseas investment has facilitated improvements to the infrastructure and the creation of new, more advanced ones.

In August 2019, China announced that it will expand the Pilot Free Trade Zones (FTZs) to six new provinces across the country. These are Jiangsu, Shandong, Hebei, Heilongjiang, Guanxi and Yunnan, bringing the total number of Chinese FTZs from 12 to 18.

Public aid and funding organisations

Invest in China - Investment Promotion Agency of Ministry of Commerce (CIPA) is engaged in Chinese investment promotion process and in charge of “Inviting in” (FDI in China) and “Going global” (outbound investment) two-way investment promotion work.

Investment Opportunities

The Key Sectors of the National Economy

Manufacturing sector, automobile industry, information and communication technology, aeronautics, energy (including nuclear energy), services, finance, building, tourism, health, agriculture, mining extraction, health, online sales (largest world market), transport infrastructure

High Potential Sectors

Chemical industry, insurance and bank, high technology, renewable energy, environment, waste treatment, franchises, medical devices. 

Privatization Programmes

China, whose economy is mixed, has a high number of state-owned corporations. Many of these firms suffer from disadvantages such as over-indebtedness and low efficiency, among others. The Chinese state wants to open these firms to private capital. Partial privatisation of numerous Chinese state-owned enterprises has been discussed since 1993, without having led to deep changes in the Chinese economic landscape. Under the government of President Xi Jinping, the mixed-ownership reform, which injects private capital into state-owned enterprises, is being promoted. One example of a privatisation effort is that at the end of 2016, the state announced the end of its monopoly on salt production. To date the effort is progressing but is still subject to resistance.

Tenders, Projects and Public Procurement

Tenders Tiger , Tenders in China
Tenders Info: Global Procurement Facilitator , Tenders in China
DgMarket , Tenders Worldwide

Sectors Where Investment Opportunities Are Fewer

Monopolistic Sectors

The Negative List for Market Access (2020 chinese edition) refers to a list of prohibited or restricted industries for foreign investment. The new 2020 National Negative List aims to accelerate the process of further opening key areas in service industries. It has further relaxed foreign investment’s access to the manufacturing and agriculture sectors compared to the 2019 Negative List. The main restrictions are on the following sectors: Production and supply of electricity, heat, gas and water; Transportation, warehousing and postal industries; Information transmission, software and information technology services; leasing and business service; Scientific research and technical services. The 2022 list of industries that are either restricted or prohibited has been cut to 117, according to a document released by the National Development and Reform Commission, from 123 on the 2020 list.

Finding Assistance For Further Information

Investment Aid Agency

Invest in China (Ministry of Commerce of the People's Republic of China)

Doing Business Guides

China Investment Guide (Deloitte)
Exporting to China (U.S. Department of Commerce)
Guides to doing business in mainland China (Hawksford China)
Doing business in China (Pinsent Masons)
Guide to Doing Business in China (Mayer Brown)
Doing business in China (Thomson Reuters Practical Law)
Extensive Guide on Doing Business in China (New Horizons Global Partners)

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