Introduction

In recent months, Chinese authorities have adopted a coordinated set of regulatory and policy measures aimed at reinforcing the country’s attractiveness to foreign investors. These include the “Catalogue of Industries Encouraging Foreign Investment (2025 Edition)”, issued on 27 December 2025 and effective as of 1 January 2026, the “Measures to Encourage Foreign-Invested Enterprises to Expand Domestic Reinvestment” (27 February 2026) adopted by the Shanghai Municipal Government, and the “Measures to Further Support Foreign-Invested R&D Centers in Enhancing Capabilities” (27 February 2026) introduced by the Ministry of Commerce (MOFCOM).

These developments signal a clear policy shift. The focus is no longer limited to attracting new foreign capital, but increasingly extends to the retention and reinvestment of profits by foreign-invested enterprises already established in China, as a tool to support economic stability and strengthen the domestic industrial base.

Legal framework

The recent measures should be understood within the broader context of China’s economic governance model, which is characterised by a close interaction between long-term strategic planning and targeted regulatory instruments.

In this framework, the Catalogue of Industries Encouraging Foreign Investment (2025 Edition) operates as a key implementation tool through which Chinese authorities actively steer foreign investment flows in line with national development priorities. Rather than merely identifying sectors open to foreign participation, the Catalogue specifically designates “encouraged” industries—those aligned with China’s industrial upgrading and economic transformation objectives. Based on the available sources, these include advanced manufacturing, innovative technologies, modern services, and sectors linked to sustainable development. The Catalogue provides a preferential regulatory environment for such activities, including tax incentives, administrative facilitation, and improved access to production resources. At the same time, China maintains a selective market access regime: while no detailed list of restricted sectors is provided in the sources, the continued existence of limitations—typically addressed through separate instruments such as negative lists—confirms a controlled opening of the market.

More broadly, the Catalogue, together with reinvestment incentives and R&D support measures, forms part of a structured policy framework in which overarching strategic documents—such as China’s Five-Year Plans—define medium- to long-term economic priorities, while specific regulatory instruments operationalise those objectives. In this sense, foreign investment policy is not neutral, but actively directed toward sectors considered critical to national development.

Relevant measures

Within this system, Chinese authorities deploy a range of policy tools, from regulatory facilitation and fiscal incentives to measures affecting capital allocation and talent management, in order to guide economic development and maximise the contribution of foreign investment to domestic growth.

1. The “Catalogue of Industries Encouraging Foreign Investment (2025 Edition)”, issued on 27 December 2025 and effective from 1 January 2026, confirms the central role of industrial planning in shaping foreign investment flows. It identifies a number of strategic sectors as “encouraged”, including advanced manufacturing, innovative technologies, and modern services, as well as areas supporting industrial transformation and sustainability objectives. These sectors benefit from a favourable regulatory framework, including fiscal incentives, administrative support, and preferential access to key resources. At the same time, the system retains a selective approach to market access, with certain sectors remaining restricted or prohibited, although the sources do not provide a detailed breakdown of such sectors.
2. The “Measures to Encourage Foreign-Invested Enterprises to Expand Domestic Reinvestment”, adopted by the Shanghai Municipal Government on 27 February 2026, are aimed at strengthening the local anchoring of foreign investment. These measures explicitly seek to promote the reinvestment of profits by foreign-invested enterprises through a coordinated set of actions, including the simplification of administrative procedures, enhanced financial support, and facilitation of capital reallocation toward new domestic projects or expansions. While the sources refer to the introduction of fiscal and financial incentives, they do not provide detailed specifications of individual benefits, instead highlighting a broader strengthening of the overall reinvestment-friendly environment.
3. Finally, the “Measures to Further Support Foreign-Invested R&D Centers in Enhancing Capabilities”, also issued on 27 February 2026, reflect a policy shift toward innovation-driven investment. These measures aim to enhance the operational capabilities of foreign-invested R&D centres by improving access to research infrastructure and resources, facilitating the attraction and retention of highly qualified personnel, and streamlining R&D activities. Particular emphasis is placed on strengthening the link between research and industrial application, with a view to converting technological advancements into productive capacity. Although the sources do not define specific categories of eligible companies, it is clear that the measures are primarily targeted at enterprises operating in high-tech sectors, advanced manufacturing, and industrial and digital innovation.

Conclusion

The measures analysed above confirm China’s intention to remain a leading destination for foreign investment, while progressively shifting toward a model that prioritises the quality, sustainability, and local integration of investments.

In this evolving regulatory landscape, instruments such as the 2025 Catalogue, together with local reinvestment policies and innovation-driven initiatives, create a more structured and policy-oriented environment. Foreign investors are therefore required to align their strategies with China’s industrial priorities and adapt to an increasingly sophisticated and targeted regulatory framework.