摘要：Since 2023, in the post-pandemic era, China’s[1]foreign direct investment (FDI) has declined under the combined pressure of geopol

Foreign Investment in China: Key Issues and Practical Guidance

Since 2023, in the post-pandemic era, China’s[1]foreign direct investment (FDI) has declined under the combined pressure of geopolitical tensions, global economic uncertainty and Domestic economic challenges. Data from the Ministry of Commerce of China (MOFCOM) shows that while the number of newly established foreign-invested enterprises (FIEs) rose steadily between 2023 to mid-2025, the actual utilization of foreign capital decreased. Specifically, FDI inflows fell from more than RMB1.13 trillion (about US$ 160 billion) in 2023[2]to RMB826.25 billion (US$114.76 billion) in 2024[3]. In the context of a global decline in FDI[4], China’s FDI performance still shows some highlights. Officials have stated that China has achieved its target for actual use of FDI under the 14th Five-Year Plan (2021-2025) ahead of schedule[5]. Despite the overall decline, foreign investment in high-tech industries continues to grow. From January to July 2025, the actual use of foreign capital in high-tech industries reached RMB137.36 billion (about US$19.28 billion), with e-commerce services, aerospace equipment manufacturing, chemical drug manufacturing, and medical instruments and apparatus manufacturing witnessing prominent investment growth, increased by 146.8%, 42.2%, 37.4%, and 25.5% respectively[6]. As China pursues its ambition to transform from the “world’s factory” into both a “global market” and an “innovation hub”, this country’s strong economic resilience, vast consumer base, upgrading industrial chains, and improving business environment remain attractive to global investors. Overall, China has steadily relaxed its regulatory regime for foreign investment, highlighting its determination to enhance openness and attract foreign capital.

Regulatory Framework for Foreign Investment in China

In China, the regulatory framework for foreign investment is set out in the Foreign Investment Law (the “FIL”) and its Implementation Regulations, and is complemented by regulations concerning market access, foreign investment information reporting, Foreign Exchange control, national security review, merger control and other related matters. Effective as of January 1, 2020, the FIL applies to all direct and indirect investment activities in China undertaken by foreign investors including foreign individuals and enterprises, and has significantly streamlined the regulatory regime governing foreign investment.

Market Access

China regulates foreign investment market access through a “Negative List” regime. Under this approach, sectors included in the Negative List for Foreign Investment are either:

The Special Administrative Measures (Negative List) for Foreign Investment Access (the “Negative List for Foreign Investment”) is formulated by the National Development and Reform Commission (NDRC) and the Ministry of Commerce (MOFCOM) with the approval of the State Council, and is updated periodically. The most recent revision was issued on September 6, 2024, and came into effect on November 1, 2024.

Key prohibited areas include:

Agriculture

Mining

Wholesale and Retail

Postal Services

Information Technology Services

Commercial Services

Scientific Research and Technical Services

Education

Cultural and Entertainment

For the manufacturing sector, the Action Plan for Stabilizing Foreign Investment in 2025, approved by the State Council on February 17, 2025, calls for the full implementation of the removal of all foreign investment access restrictions in manufacturing.

For the services sector, pilot schemes have been introduced in certain areas like free trade zones (e.g., Beijing, Shanghai, Shenzhen, Hainan, Guangdong), offering more favorable and open measures for qualified foreign investors, particularly in telecommunications, healthcare and education. For instance, these pilot zones may lift restrictions on foreign shareholding in certain value-added telecommunications services, permit foreign investment in the development and application of human stem cell and gene diagnosis technologies, and allow the establishment of wholly foreign-owned hospitals. The scope of these pilot schemes continues to expand. On April 8, 2025, the State Council issued the Work Plan for Accelerating the Comprehensive Pilot Program for Expanding Opening up in the Service Sector, adding nine cities as pilot areas: Dalian, Ningbo, Xiamen, Qingdao, Shenzhen, Hefei, Fuzhou, Xi'an and Suzhou.

For areas not included in the Negative List for Foreign Investment, foreign investors are granted national treatment, meaning they are subject to the same regulatory regime as domestic investors. Nevertheless, foreign investors must also comply with the Market Access Negative List, which designates industries and business activities that are either prohibited (such as phased-out products, technologies and processes) or subject to government approval, applicable to both domestic and foreign investors. Thus, even if a foreign investment is not covered by the Foreign Investment Negative List, it must still be reviewed against the Market Access Negative List, the most recent revision was issued by the NDRC, the MOFCOM and the State Administration for Market Regulation (SAMR) which came into effect on April 16, 2025.

Business Registration

Since the implementation of the FIL, the procedures and formalities for setting up FIEs have been simplified. As with domestic invested enterprises, FIEs are required to apply for registration of establishment and subsequent changes (including changes to name, business scope, legal representative, registered capital, shareholders and other registered particulars) with the administrations for market regulation (AMR) or local competent counterparts, and obtain a business license before commencing operations.

Local AMRs publish on their websites detailed procedures and document requirements for FIEs registration. While practices may vary slightly from region to region, the overall process is generally consistent. It is important to note that individuals serving as shareholders, legal representatives, directors, or other senior management are required to complete ID verification. For non-Chinese citizens, if local policy does not support online processing, the individual must appear in person with their identification documents at the registration authority.

Foreign Investment Information Reporting

Under the FIL regulatory regime, foreign investors are no longer required to obtain approval or complete record-filing procedures prior to business registration or registration change; instead, investment information should be reported to the competent commerce authorities concurrently with registration or change of registration by submitting online: (1) an initial report at the time of establishment of a newly established FIE or joint venture (JV); (2) a change report, when there are changes to the information contained in the initial report; (3) a deregistration report, when an FIE is deregistered or converted into a domestic enterprise; and (4) an annual report for the preceding year, to be submitted between January 1 and June 30 each year.

The information to be reported covers not only the particulars of FIEs, but also details of the foreign investors and their ultimate beneficial owner (UBO). Where investment is made through the acquisition of equity or assets, the appraised value of the equity or assets to be acquired should also be reported. If the consideration paid for the acquisition is less than 90% of the appraised value, an explanation is required.

Foreign Exchange Registration

Upon completing business registration and obtaining a business license, FIEs must apply for foreign exchange registration with the banks in their places of registration, these banks handle foreign exchange registration for foreign direct investment under the supervision of the State Administration of Foreign Exchange (SAFE) and its local branches. Any subsequent changes, such as increases or decreases in registered capital or equity transfers, should be reported to the banks for renewal of foreign exchange registration. In the event of liquidation of FIEs or its conversion into a non-foreign invested company, they need to apply for the cancellation of foreign exchange registration.

When a Chinese shareholder sells shares in a domestic company to foreign investors, the seller will be permitted to open a special account to receive the share purchase price paid in foreign currency by foreign investors only after the obtaining of the certificate of foreign exchange registration. Specifically, share transfers are required to follow commercial principles and be executed at fair value. SAFE requires banks to verify the authenticity and regulatory compliance of the transaction and its pricing.

National Security Review

Foreign investments that have, or may have, an impact on national security are subject to security review. The competent authority is the Office of the Working Mechanism for Security Review of Foreign Investment, established under the NDRC and jointly led by the NDRC and MOFCOM. Filings may be required either mandatorily before investment or upon request by the Office. Prior to submitting a filing, investors may consult with the Office for guidance.

Mandatory pre-investment filing applies to the following areas:

Some industry-specific regulations explicitly require security review for foreign investment in designated areas. For example, the Measures for Fiscal Supervision and Administration of the Asset Appraisal Industry (as revised by the Ministry of Finance on January 2, 2019) requires foreign investors establishing, holding equity in, or joining asset appraisal firms in China, or provide statutory asset appraisal services, to undergo national security review. Similarly, the Provisions for the Administration of Investment in the Automotive Industry (promulgated by the NDRC and effective January 10, 2019) which mandate merger control and security review as required by law for major automobile investment projects involving new construction, mergers and acquisitions, or equity changes that may affect industrial security.

Whether a foreign investment project requires security review is assessed on a case-by-case basis, taking into account industry-specific regulations and consultation with the competent authorities. Furthermore, the existing Unreliable Entity List regime plays a key role in the foreign investment security review process.

Recent Developments on Reinvestment

China’s effort to ease regulations and introduce incentives to attract foreign investment continues. On July 7, 2025, the NDRC, MOFCOM, SAFE and other authorities jointly issued the Notice on the Implementation of Several Measures to Encourage Domestic Reinvestment by Foreign-Invested Enterprises, which simplifies or removes certain requirements and procedures for FIE reinvestment in China in areas such as market access, tax incentives and foreign exchange registration. For example, when a FIE uses its foreign exchange capital or RMB funds converted from that foreign exchange capital to make a domestic reinvestment, the company receiving the investment or the equity transferor is no longer required to apply for foreign exchange registration in respect of such reinvestment. In parallel, from July 1, 2025, FIEs in designated pilot areas including Jiangsu, Shanghai, Tianjin, Liaoning, Hebei, Hunan, Shaanxi and Chongqing are required to submit investment information when making first-tier reinvestment in China. The reporting is relatively simple and limited to basic details such as the name of the reinvested enterprise, paid-in capital, actual investment amount, and source of funds. Additionally, eligible foreign investors that reinvest their domestic profits may offset an amount equal to 10% of the reinvestment amount against their current year tax payable. If a lower rate is stipulated under an applicable tax treaty, the lower rate shall apply

(This publication is provided for general informational purposes only and is not intended to constitute, nor should it be used as, legal advice .)

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