In 2026, the term "invoice-based economy" was frequently mentioned.

This unprecedented regulatory campaign is by no means a simple industry overhaul.

Rather, it is a comprehensive test of the government’s governance capabilities, performance-oriented approach, and development philosophy.

The proliferation of the “invoice-padding economy” appears, on the surface, to be a phenomenon of market entities engaging in illegal business practices.

In reality, the key lies not in the intensity of “cracking down,” but in the wisdom of “governing.”

How can we strike the optimal balance between curbing malpractices and safeguarding development?

01 The Roots of the “Invoice Economy”

First, let’s address the question: “What exactly is the ‘invoice economy’?”

In some regions, authorities have illegally attracted shell companies to issue fraudulent invoices and conduct bogus transactions, profiting from fiscal rebates.

The rise of the “invoice economy” stems from a complex governance context and practical incentives; at its core, it is a “false boom” in development fueled by the combined forces of short-term political achievement impulses and an extensive governance model.

Over the past year, various regions have proactively reviewed existing policies.

Multiple provinces have comprehensively reviewed existing policies—such as fiscal rebates and subsidies related to investment promotion—that are implemented directly by local governments or through government-funded business entities and public institutions.

Some localities have proactively revised industrial park incentive policies, eliminating practices tied to tax payments and economic contribution metrics. Instead, they have established special fiscal funds included in the government’s annual budget, shifting from non-compliant tax rebates to compliant support.

These adjustments point in the same direction: allowing the market to play a decisive role in resource allocation, rather than relying on government subsidies and policy protection.

We believe that the "invoice-driven economy" stems from the convergence of three overlapping pressures.

First, pressure to deliver short-term political achievements.

In some regions, performance evaluation metrics still focus primarily on investment attraction figures, tax revenue growth, and GDP growth rates, lacking differentiation.

Tasks are broken down through multiple levels of administration, and results must be delivered by year-end, objectively creating pressure to “make the numbers look good and ensure visible growth.” Under this orientation, some localities no longer focus on deepening industrial development or nurturing the real economy, but instead turn to quick-fix approaches.

As long as enterprises register, issue invoices, and pay taxes, they can quickly generate statistical data and revenue for the fiscal books. Consequently, a chaotic situation has emerged where quantity is prioritized over quality and form over substance—essentially using a false prosperity to offset anxiety over political performance.

Second, the fiscal predicament of local governments.

The contraction of land-based fiscal revenue, a narrow tax base, and unrelenting fixed expenditures have placed significant pressure on local finances.

To stabilize their finances, some regions have resorted to tax rebates and fiscal incentives as quick fixes. Local governments use generous rebates to attract shell companies to issue invoices and pay taxes, while the companies pocket most of the rebates for arbitrage, leaving the local government with a meager net gain.

This ultimately creates a situation where “enterprises profit from arbitrage, local governments foot the bill, and the state suffers.”

Third, intense regional competition.

Many localities are not unaware of the risks; rather, they dare not be the first to stop and are unable to put a stop to it.

Amid intensifying competition for investment, if a neighboring district or similar industrial park implements high tax rebate policies, a local government that sticks to its principles may face the immediate pressure of “business outflow, declining statistics, and falling rankings.”

Everyone knows that fictitious invoicing, circular transactions, and high tax rebates are merely “drinking poison to quench thirst,” but no one dares to be the first to exit this vicious cycle of competition, leading to the spread of non-compliant practices across regions and the continuous accumulation of risks.

02 Governance Pathways for Local Governments

Addressing the “invoice-driven economy” does not mean rejecting investment promotion or stifling market vitality.

Local governments must ground their efforts in local realities, adopt a problem-oriented approach, and establish a governance system characterized by “precise identification, categorized handling, and long-term control.”

Regarding the “invoice economy,” we must tackle challenges with a refined approach, demonstrating a balance between the humanity and rigor of governance.

For non-compliant entities—such as “pure shell companies, fake transactions, and those seeking to issue fraudulent invoices”—we must maintain a zero-tolerance policy and resolutely eliminate them.

Such entities are the root cause of the chaos in the “invoice-driven economy” and severely undermine market order and the governance environment; strictly cracking down on them is a fundamental requirement for upholding the bottom line of governance.

Local governments must leverage the joint enforcement mechanism of the eight ministries to strengthen cross-regional investigations and coordinated law enforcement. For shell companies and entities engaged in fraudulent invoicing identified through inspections, measures such as dissolution, penalties, and public disclosure must be taken in accordance with the law to create a powerful deterrent effect.

At the same time, we must thoroughly investigate the underlying chains of interest, strictly investigate and punish related violations and disciplinary offenses, strengthen educational warnings, guide market entities to establish a mindset of compliant business operations, and curb the proliferation of the “invoice economy” chaos at its source.

Throughout this process, we must strictly adhere to the rule of law, standardize law enforcement procedures, and ensure that all enforcement actions are fair and impartial, so that every case of rectification stands the test of both law and history.

For high-quality enterprises that “have a physical presence, conduct legitimate business, and issue invoices in compliance,” we will resolutely retain them and provide full support.

In reality, many enterprises adopt compliant business models—such as centralized registration of headquarters, off-site operations of branches, and unified invoicing—to meet the needs of scaled and intensive development.

The invoicing practices of such enterprises are fully consistent with their business substance and cash flow. They drive local industrial clustering, create jobs, and increase tax contributions, serving as a vital pillar for the high-quality development of local economies.

Local governments must clearly define the boundaries of their governance; they must not arbitrarily restrict the invoicing rights of such enterprises, must not unlawfully revoke legitimate industrial support policies, and must certainly not “collateral damage” the development vitality of compliant enterprises through indiscriminate crackdowns.

On the contrary, local governments should proactively optimize administrative services, streamline procedures such as invoice issuance and tax filing, and implement convenience measures like “one-stop online services” and “acceptance with missing documents.” This will reduce enterprises’ institutional transaction costs, create a higher-quality, more efficient, and more convenient business environment for compliant enterprises, allow them to feel the warmth of governance, and strengthen their confidence in taking root locally and achieving sustainable development.

For transitional entities that are “imperfect, rectifiable, and in need of standardization,” we must prioritize guidance over punishment, granting them reasonable space and time for rectification.

These enterprises operate in a “gray area” between compliance and non-compliance; while they possess a certain foundation of actual business operations, their conduct involves minor violations—such as discrepancies between invoicing and actual business activities or failure to promptly file for cross-regional operations—rather than the issuance of fraudulent invoices or the fabrication of false data.

For such enterprises, local governments adhere to the principle of “combining education with guidance, and rectification with standardization,” avoiding simplistic or heavy-handed punitive measures.

Senior officials may proactively visit these enterprises to explain relevant policies and regulations, clarify rectification requirements and deadlines, and guide them in improving management systems, standardizing invoicing practices, and addressing compliance gaps.

For enterprises that have completed rectification and been verified as compliant, normal business operations should be promptly restored; for those that fail to rectify within the deadline or remain non-compliant after rectification, appropriate enforcement measures should be taken in accordance with the law.

Ultimately, eliminating the excesses of the “invoice economy” is aimed at ensuring sustainable economic development. Categorizing and addressing issues based on actual circumstances is precisely the true test of local governments’ governance capabilities.

03 A Fundamental Shift in Compliance Direction

In their exploration of compliance, localities have identified three key areas of support.

First, establish special funds and include them in the fiscal budget.

This approach moves away from the previous "tax-for-subsidy" linkage, where subsidies were directly tied to tax payments, and instead allocates special funds in the annual budget based on the needs of industrial development.

This approach not only supports industrial development but also avoids the risk of non-compliance associated with direct links to tax revenue.

Second, shifting from tax rebates to industrial support.

Truly competitive industrial parks require more than just tax incentives; they need systematic support in land supply, factory construction, and infrastructure.

Comprehensive industrial support, efficient government services, and a mature innovation ecosystem are more attractive than mere tax rebates.

In some areas, standard factory buildings are constructed as part of the planning phase to reduce enterprises’ initial investment costs; in others, industrial land quotas are reserved for key industries to ensure sufficient space for project implementation.

In addition, local governments proactively establish public service facilities such as R&D platforms and testing centers to help enterprises reduce innovation costs.

Third, optimize the evaluation system to balance quantity and quality.

As indicated by directives from higher authorities, “what is evaluated” determines “what is done.”

To drive local optimization of evaluation systems, we should introduce metrics such as “industrial chain completeness,” “enterprise survival rate,” and “innovation ecosystem vitality,” while reducing excessive emphasis on short-term tax revenue and investment attraction figures.

Only by adjusting the evaluation system can local governments truly be motivated to engage in long-term cultivation.

Local governments should use rectification campaigns as a lever to reflect on shortcomings in their development philosophies and governance models, accelerate the transformation of performance evaluation perspectives, optimize assessment systems, and enhance regulatory capabilities, thereby eliminating inflated growth figures through refined governance.

Only in this way can local economies achieve effective qualitative improvement and reasonable quantitative growth; only then can vibrant industries be cultivated and governance achievements that stand the test of practice be created, providing solid support for the construction of a unified national market and high-quality economic development.

In Conclusion

The path to development is long and arduous, but progress will lead us to our destination.

False prosperity will eventually fade; only hard work can build a strong nation.

Strictly investigating the “invoice-driven economy” safeguards genuine economic growth, embodies a correct view of governance achievements, and demonstrates the commitment and wisdom of local governments in governance.

Only through sustained, long-term efforts across all regions can we eliminate the breeding ground for the “invoice economy” and propel the economy forward steadily on the path of high-quality development.