China: FDI restrictions continue to be relaxed

International Tax Review is part of Legal Benchmarking Limited, 1-2 Paris Garden, London, SE1 8ND

Copyright © Legal Benchmarking Limited and its affiliated companies 2026

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement


China: FDI restrictions continue to be relaxed

Sponsored by

sponsored-firms-kpmg.png
China is undertaking a range of measures to facilitate outbound investment

Lewis Lu of KPMG China explains how the country has introduced a range of business-friendly policies to incentivise foreign investment in 2021.

Foreign direct investment (FDI) has long played a crucial role in driving the development of China’s economy. China continues to be one of the world's most attractive investment destinations, being the second largest FDI recipient for the past several years.

It is estimated that in 2020, even against the backdrop of a challenging global economic environment, China hit a new record of more than $140 billion in FDI, up more than 6% on the year. The Chinese authorities have recently made a whole series of regulatory changes to support the continuation of this trend.




To promote FDI, China’s new foreign investment law came into effect from January 2020. This was followed in June 2020 with updated nationwide and free trade zone (FTZ) ‘negative lists’ for foreign investment, which reduced the industries for which foreign investment is restricted or prohibited. This was followed in December 2020 by an update to the ‘negative list for market entry’, which governs the sectors in which private enterprise (both domestic and foreign) can invest – this needs to be read in parallel with the foreign investment lists. Under this, just 123 sectors are now off limits to private capital – down from 328 in 2016.



In December 2020, a new Catalogue of Encouraged Industries for Foreign Investment was released, applicable from January 2021. Enterprises in business sectors designated as ‘encouraged’ may be granted a range of tax, customs and other support, such as preferential awards of land use rights, by local governments. Encouraged sectors have been increased from 1108 to 1234, relative to the 2019 catalogue. These include advanced manufacturing (e.g. new materials, environmental protection), modern services (e.g. research and development, cross-border e-commerce, online education and medical) as well as food processing, tourism, medical devices, and shipping. Some of these sectors are nationally encouraged and others are encouraged for the less developed western region of China, for the old industrial north east, and for the key development focus area of Hainan island.



From February 2021, there is also a new ‘negative list’ for the Hainan free trade port (FTP), which is even more permissive than the existing national and FTZ lists. This drops the remaining restrictions for mining and auto manufacturing and further reduces those on telecommunications, education and legal services.



In parallel to all this, the newly agreed China-EU Bilateral Investment Treaty (BIT) (announced in December 2020) also commits China to further open up the manufacturing, automotive, financial services, medical, cloud services, shipping and air transport sectors to European investment.



China is also undertaking measures to facilitate outbound investment, including recent rule changes made by China’s central bank and foreign exchange administration in January 2021 to permit Chinese enterprises to lend more to their overseas subsidiaries.





Lewis Lu

Partner

E: lewis.lu@kpmg.com



more across site & shared bottom lb ros

More from across our site

Historical claims involving KPMG Australia's tax practice have surfaced as the firm battles a separate parliamentary inquiry into its handling of whistleblowers
While AI is revolutionising tax work, it is also reshaping clients’ willingness to pay for advice and their perception of the value generated by tax advisers
From Dhruva Advisors to Svalner Atlas, Ryan is growing fast. Tom Shave discusses consolidation, competition, and tax’s private equity debate
Awards
ITR is delighted to reveal the shortlisted nominees for the Middle East Tax Awards
The UK has confirmed its approach to the OECD’s side-by-side deal, but US-parented groups may find pillar two compliance remains far from straightforward
Fragmented pillar two taxation and increased use of AI by tax authorities have left clients fearful of heightened disputes exposure
Grant Thornton Advisors’ latest acquisition has produced the fifth-largest US advisory firm by revenue, but there’s still a clear gulf between it and the big four
Crowe joins Grant Thornton, WTS and Ryan in attracting PE investment, suggesting that dealmakers remain bullish on the tax advisory sector
HMRC expects advisers to meet ever-higher compliance criteria. After 24 consecutive qualified audit opinions, many will ask whether HMRC should hold itself to the same standards
The purchase of Marosa represents the second major tax tech consolidation this week, raising questions of a broader industry trend
Gift this article