This week has seen a flurry of policies related to foreign investment.
Yesterday, the Ministry of Commerce, the National Development and Reform Commission, and the Ministry of Finance jointly issued:
the “Action Plan for Stabilizing, Promoting, and Optimizing Foreign Investment,” comprising 15 measures across five areas.
Today, draft amendments to the Government Procurement Law and the Bidding and Tendering Law were jointly submitted to the Standing Committee of the National People’s Congress for initial review.
This marks the first time these two laws, which have been in effect for more than 20 years, have been amended simultaneously.
Earlier, on June 16, at a symposium chaired by Zheng Zhejie, Director of the National Development and Reform Commission, the issue of “regulating local investment promotion activities” was raised, and this was discussed in the context of deepening the development of a unified national market.
When it comes to attracting foreign investment, the focus of competition among local governments has shifted.
01 Selecting the Right Kind of Foreign Investment
Data on foreign investment has consistently sparked discussion over the past two years.
While the number of newly established foreign-invested enterprises has been steadily rising, the actual amount of foreign capital utilized is slowing down.
Looking solely at the total volume trend, it is easy to conclude that “foreign investment is withdrawing,” but this is precisely where it is easiest to misjudge the situation.
At a press conference held by the State Council Information Office, Ling Ji, Vice Minister of Commerce, summarized the current state of foreign investment in four words: stable scale, stable operations, stable contributions, and stable expectations.
Overall, inflows exceed outflows; China’s net increase in actual foreign investment has generally remained above $100 billion, and the country continues to rank first among developing nations in terms of foreign investment attraction, accounting for approximately 12% of the global total.
Zhan Yubo, Deputy Director of the Institute of Economics at the Shanghai Academy of Social Sciences, provided a longer-term perspective:
China’s FDI inflows peaked in 2022 and declined consecutively from 2023 to 2025, but the total volume in 2025 remained at a high level, significantly higher than before 2010.
It is the growth rate that is declining, not the underlying volume. Surveys show that nearly 70% of executives at foreign-invested enterprises remain confident about their future development in China over the next 3 to 5 years.
Why has the amount declined? In the past, the figures for actual FDI utilization were often driven by large, capital-intensive projects—such as automobile manufacturing plants and petrochemical complexes—worth tens of billions. A single project could bring in tens of billions upon completion. However, with global cross-border direct investment already on a downward trend, such large-scale projects are becoming less common.
Newly established foreign-funded enterprises, on the other hand, are mostly small and medium-sized, asset-light, and service-oriented. While individual projects may not be large in scale, they are increasingly concentrated in high-tech sectors.
In the first four months of this year, actual foreign investment in high-tech industries accounted for 40.4% of the national total, setting a new record high, with investment in R&D and design services surging by more than 108%.
Zhan Yubo, Deputy Director of the Institute of Economics at the Shanghai Academy of Social Sciences, breaks it down clearly:
The number of newly established enterprises is rising rapidly, though they tend to be small in scale, while the portion of existing foreign investment that does not align with industrial upgrading is actively withdrawing. Amid this cycle of exit and entry, the structure of foreign investment is continuously optimizing.
Even more telling is the source of these investments. In the first four months of this year, U.S. investment in China bucked the trend and grew by 24.5%, while Luxembourg, Switzerland, and France saw even higher growth rates.
Against the backdrop of ongoing tariff disputes, U.S. investment has still managed to achieve double-digit growth by directing funds toward high-tech, new energy, and biopharmaceutical sectors—areas less affected by tariffs and characterized by high technical barriers. U.S. investment in China’s high-tech sector now accounts for more than 50% of the total.
Local investment promotion efforts have long been judged by “the actual amount of foreign capital utilized.” This metric worked well in an era dominated by capital-intensive industries, but once the incoming foreign investment consists of small yet high-quality high-tech projects—and a batch of high-growth, R&D-focused foreign enterprises—the numbers may not look as impressive.
The “Action Plan for Stabilizing and Optimizing Foreign Investment” focuses its efforts on market access precisely to achieve this “selective recruitment.”
Jing Qin, head of the Foreign Investment Department at the National Development and Reform Commission (NDRC), explained that the national negative list for foreign investment access has been reduced to 29 items, with all restrictions in the manufacturing sector eliminated. The new “Catalog of Industries Encouraging Foreign Investment” has added 205 new entries, steering foreign investment toward advanced manufacturing, modern services, and high-tech sectors.
Today, the service sector accounts for 70 percent of actual foreign investment. Whereas in the past, China accepted all comers and considered any investment a success simply for being brought in, the current approach is to selectively attract investment in these specific sectors; those that align with the direction of industrial upgrading should be prioritized.
The most carefully selected investments are those by foreign companies that bring their R&D and high-end operations to China.
Wang Ya, head of the Department of Foreign Investment Administration at the Ministry of Commerce, put it bluntly: the goal is to vigorously attract foreign investors to establish functional institutions in China, such as regional headquarters and R&D centers.
Of the Schaeffler Group’s two most important global R&D bases—one in Germany and the other in China—board member Stahler told the media that while foreign investors once viewed China as a manufacturing base, it is now becoming a global hub for innovation.
The capital inflows from such projects may not match those of a single automobile manufacturing plant, but the technology, talent, and supply chain cohesion they bring are precisely what give the term “high-quality” its true weight.
As Vice Minister of Commerce Ling Ji noted, the challenge in achieving the goals of “stabilizing existing investment, expanding new investment, and improving quality” lies precisely in “improving quality.” Once the market’s main gate is opened, we must still address the bottlenecks where “the main gate is open, but the side gates remain closed.”
02 Retaining Foreign Investment That Has Already Taken Root and Encouraging Reinvestment Within China
In the past, efforts and resources dedicated to attracting investment were typically focused on “signing agreements, ribbon-cutting ceremonies, and unveiling plaques,” while services and incentives for capital increases for existing foreign enterprises that had already taken root were relatively lax.
The “Action Plan for Stabilizing, Strengthening, and Optimizing Foreign Investment” specifically places greater emphasis on “domestic reinvestment” to address this imbalance, encouraging foreign enterprises that have already turned a profit to retain their earnings in China and reinvest them.
As early as July 2025, the National Development and Reform Commission (NDRC) and other departments issued 12 measures to encourage domestic reinvestment; this latest initiative takes that policy a step further toward practical implementation.
The practicality of this approach lies in cost and certainty. When a foreign-invested enterprise generates profits, there are essentially two options: repatriating them to the home country or retaining them in China for reinvestment. Reinvestment eliminates the entire process of selecting a new site, negotiating land use, and obtaining permits—making it the most certain source of incremental investment for local governments.
The “Action Plan for Stabilizing, Promoting, and Optimizing Foreign Investment” has implemented tax incentives for foreign investors to directly reinvest their profits, effectively tipping the scales toward “staying” in this choice. Furthermore, by including more reinvestment projects in the list of major and key foreign investment projects, the plan provides a safety net for follow-up services.
The scale of this sector is substantial. By the end of 2025, the number of foreign-invested enterprises in China reached 533,000, with the stock of foreign investment approaching $4 trillion; in 2025, more than 8,000 foreign-invested enterprises increased their capital, and in the first five months of this year, nearly 4,000 more made additional investments.
Swiss pharmaceutical giant Novartis is a prime example: it announced an expansion of its investment in China by more than 3.3 billion yuan, with potential investments exceeding 80 billion yuan through collaborations with several local Chinese innovative pharmaceutical companies; the speed at which its new drugs are approved in China has already surpassed that in Europe.
Another way existing foreign enterprises are “stepping up” is by putting down deeper roots.
By the end of 2025, Starbucks sold 60 percent of its China operations to domestic Chinese capital, and Burger King China also transferred a majority stake to Chinese institutions.
Zhan Yubo analyzes that this is actually a strategy by foreign brands to respond to increasingly fierce competition through more thorough localization.
Tang Xiaodong, President of Greater China for the German cleaning technology company Kärcher, put it more bluntly:
"The space for foreign brands in the Chinese market is indeed shrinking. What we need to do now is to continuously cultivate local talent and improve efficiency. In his own words, ‘If we can’t win, we must at least survive.’"
Support alone is not enough; the other half of retaining them depends on service.
The “Action Plan for Utilizing Foreign Investment to Stabilize, Promote, and Optimize” includes a provision that is often overlooked: assigning provincial-level task forces to major foreign investment projects, thereby linking information gathering, issue resolution, and feedback into a seamless, end-to-end process.
When a foreign-invested enterprise seeks to increase capital and expand production, its greatest fear is that issues related to land use, environmental impact assessments, and energy consumption quotas will get stuck in the middle of the process with no one to take charge. The purpose of these task forces is precisely to ensure that these bottlenecks are resolved through coordinated efforts around a single table.
Ling Ji, Vice Minister of Commerce, revealed that the Ministry has held 50 roundtable meetings with foreign-invested enterprises and resolved nearly 3,000 issues raised by them.For industrial parks in central and western China that cannot compete with coastal regions in terms of location, this service and support system offers targeted benefits; what they lack in geographical advantage, they can make up for by being “ready to receive and quick to process” requests.
03 Treating All Equally: Fairness and Transparency
This final aspect is the most significant and innovative element of this policy package.
Foreign enterprises consider many factors when deciding to set up operations in a particular location—including the market, industrial chains, supporting infrastructure, and talent—and preferential policies have always been just one part of the equation.
But today, the demands repeatedly voiced by foreign enterprises have shifted in focus: whether they can participate equally in government procurement and bidding processes, with transparent rules and commitments that are honored.
Sang Baichuan, Dean of the Institute of International Economics at the University of International Business and Economics, has long pointed out this shift. China’s approach to attracting foreign investment is shifting gears: whereas it previously relied on preferential policies, it now relies more on improving the business environment and institutional openness.
The “Action Plan for Stabilizing, Promoting, and Optimizing Foreign Investment” anchors the national treatment of foreign-invested enterprises in practice—a concrete step in implementing this shift.
Government procurement and bidding are the two areas where “status bias” is most pronounced.
In the past, certain procurement activities involved designating specific brands, restricting participation to locally registered entities, and differentiating treatment based on ownership structure and investor nationality. It was not uncommon for foreign enterprises to be shut out with a simple statement that they “must be locally registered.”
This stems from systemic roots: local governments, seeking to secure local tax revenue and jobs, have used procurement and bidding processes to give preferential treatment to local enterprises, thereby creating hidden barriers.
The “Action Plan for Stabilizing, Promoting, and Optimizing Foreign Investment” clearly stipulates that business support policies across all sectors must treat foreign investment on an equal footing and apply them impartially, while strictly implementing fair competition reviews in the areas of government procurement and bidding.
Zheng Yong, head of the Treasury Department of the Ministry of Finance, put it bluntly: treating all types of business entities equally is a principle that government procurement has consistently upheld, and the next step is to accelerate reforms to the government procurement system.
This is further reinforced by the “Notice on Implementing Domestic Product Standards and Related Policies in Government Procurement,” issued by the General Office of the State Council in September 2025, which explicitly prohibits differential treatment based on unreasonable conditions such as ownership structure, equity structure, or the nationality of investors.
Coupled with the fact that this marks the first time in over two decades that the Government Procurement Law and the Bidding and Tendering Law have been revised simultaneously—enshrining fair competition at the legislative level—it is clear that this effort is truly being taken seriously.
The “Action Plan for Stabilizing and Optimizing Foreign Investment” calls for accelerating the release of lists of encouraged and prohibited activities for local governments in attracting investment, strengthening policy consistency, and ensuring trustworthiness and contract compliance—all aimed at putting the brakes on this kind of internal friction.
The example of Guangdong demonstrates that this approach is viable. In recent years, high-end manufacturing firms from Germany and South Korea have been flocking to Guangdong.
In 2025, Germany established 53 new foreign-invested enterprises in Guangdong, with contracted foreign investment increasing by 1.25 times year-on-year; in the first four months of this year, another 16 were added;In June, South Korea’s Hyundai Motor Company completed its hydrogen fuel cell system base in Huangpu, Guangzhou—its first overseas facility integrating R&D, production, and sales; South Korean semiconductor firm STI has established operations in Baiyun District with a total investment of 12.4 billion yuan.
Fei Mingyuan, President of Zeiss Greater China, said that there are two key hubs in China: the Yangtze River Delta specializes in precision instruments, while the Greater Bay Area focuses on eye health and optical lenses. What they value most are China’s mature supply chains and vibrant innovation. Many German “hidden champions” share this sentiment.
Today, the investment logic of foreign capital has completely changed. Companies no longer focus on labor costs, nor do they chase short-term subsidies. What truly determines whether a company will set up operations is whether a region can provide a mature industrial ecosystem, stable market demand, and seamless industrial collaboration.
In Closing
When it comes to the 15 Measures on Foreign Investment, the underlying goal—repeated time and again—is essentially the same: to reinforce this sense of certainty.
China will further deepen comprehensive reforms, continuously expand high-level opening-up, and build a first-class business environment that is market-oriented, governed by the rule of law, and internationalized, sharing the opportunities of China’s modernization with all parties.
We hope that multinational enterprises will continue to deepen their roots in the Chinese market, collaborate with upstream and downstream enterprises in China’s industrial chains to innovate and grow together, and achieve mutually beneficial and win-win development.
