Published by ChinaMNC · Luohe

China Moves to Curb 'Involution' Competition: What New Investment-Promotion Rules Mean for Foreign Founders

A guide for foreign founders on China's multi-ministry push to standardize local investment promotion, curb cutthroat 'involution' competition, and build a unified national market, based on recent official statements and policy deployments.

Why Foreign Founders Should Watch China's 'Anti-Involution' Policy Push

China's central government is rolling out a coordinated package of policies aimed at standardizing how local governments attract investment and at curbing what officials call 'involution-style' competition — the race among regions to offer ever-deeper incentives, often at the expense of orderly markets. For foreign founders registering or operating a company in China, these changes could reshape the incentives, subsidies and regulatory environment you encounter at the local level. The following summarizes what has been officially announced, without adding predictions beyond the source material.

What Is Actually Being Deployed

In recent days, several central ministries and agencies — including the National Development and Reform Commission (NDRC), the Ministry of Finance, the Ministry of Industry and Information Technology (MIIT) and the State Administration for Market Regulation (SAMR) — have issued statements on strengthening capacity governance in key industries and regulating fiscal subsidies. According to the source, policy documents expected to be introduced include a regulation on building a unified national market, a list of matters that obstruct that market, and a list of encouraged and prohibited items for local investment promotion. These are intended to give 'anti-involution' efforts more legal and institutional support.

The 'One Regulation, Two Lists, Three Systems' Framework

Wang Renfei, director of the NDRC's comprehensive reform department, described the institutional plan as 'one regulation, two lists and three systems.' The regulation refers to drafting a unified national market construction regulation to strengthen legal safeguards. The two lists are the obstruction list and the investment-promotion encouraged/prohibited list, which clarify what local governments can and cannot do when promoting economic development. The three systems refer to improving statistics, fiscal and tax systems and performance assessment systems conducive to a unified market. For founders, the practical takeaway is that local incentives may become more transparent and standardized, with clearer boundaries on what localities may offer.

Regulating Local Governments and Subsidies

NDRC Vice Chairman Wang Changlin said at a State Council Information Office briefing that this year's market regulation focus will be on deepening the unified national market and stimulating market vitality. He said the priority is comprehensive rectification of 'involution-style' competition, shifting from competing on price to optimizing value, strengthening capacity regulation, and resolving temporary supply-demand imbalances. He also called for refining the boundaries of encouraged and prohibited items in local investment promotion and regulating local economic promotion behavior.

On fiscal subsidies, Vice Minister of Finance Liao Min said the central government takes seriously and resolutely corrects irregular subsidy behavior in some localities. In 2025, the Ministry of Finance formed a cross-departmental task force with relevant departments to carry out special rectification of local fiscal subsidies. Next steps include improving the task force mechanism, strengthening information sharing and regulatory coordination, and improving the system for managing fiscal subsidies.

Zhao Chunlei, deputy director of SAMR's competition coordination department, said deepening the fair competition review system and strengthening enforcement against abuse of administrative power to exclude or restrict competition are important measures. In the previous year, SAMR launched a special action on such abuse, filing 96 cases and closing 75, according to the source.

Industry-Specific Measures: Batteries, EVs and Solar

MIIT Minister Li Lecheng said the ministry will strengthen capacity monitoring and early warning in key industries and consolidate the results of rectifying 'involution-style' competition. On January 7, four departments including MIIT held a symposium on the power and energy storage battery industry, noting blind construction and irrational price competition that disrupt market order and weaken sustainable development. The meeting deployed measures on market supervision, capacity management, industry self-discipline and regional coordination. On January 13, MIIT convened an inter-ministerial joint meeting on energy-saving and new energy vehicle industry development, emphasizing standardized competition order, cost investigations, price monitoring, production consistency and quality inspections, and standards-led upgrading.

Why Local Incentives Became So Aggressive

Luo Zhiheng, chief economist at Yuekai Securities, explained that value-added tax accounts for roughly 40% of China's tax revenue and is shared among regions based on the production location principle — meaning tax is paid where production occurs, not where consumption occurs. This naturally gives local governments a strong incentive to attract investment. The NDRC Party Group noted in a Qiushi article that some localities have offered irregular tax and fee preferences in investment promotion, intensifying 'involution-style' industrial competition. The plan is to formulate a unified national list of local investment promotion behavior, clarify encouraged and prohibited acts, and increase investigation and notification of violations.

What This Means for Foreign Founders

• Expect clearer rules on incentives. Local governments may face tighter boundaries on tax, land and electricity preferences, as well as on debt-financed subsidies, according to central economic work conference guidance cited in the source.
• Watch for the investment-promotion lists. Once published, these lists should clarify what local authorities can and cannot offer, reducing reliance on informal 'drawer agreements' that the central government says it will resolutely correct.
• Industry-specific scrutiny is increasing. If you operate in batteries, new energy vehicles or solar, expect more capacity monitoring, price oversight and quality checks.
• Assessment metrics may change. Localities are being guided to adjust investment-promotion assessment mechanisms and set quantity targets realistically, which could affect how aggressively local officials court your project.

Local Implementation Examples

Shandong province has said it will actively integrate into the unified national market, standardize investment promotion, strengthen bidding system rectification and coordinate reforms on access, scenarios and factors. Fujian province has pledged to deepen integration into the unified national market, increase efforts to break down barriers, and standardize investment promotion.

What Remains Incomplete

The source notes that the legal framework for the unified national market is not yet complete, and current fiscal, tax and statistical systems do not fully meet its requirements — a deeper reason why some violations persist. Zhang Jun, chief economist at China Galaxy Securities, said current policy focuses more on upgrading industrial core competitiveness and optimizing competition mechanisms than on simply clearing excess capacity through administrative means. Unlike the previous capacity-reduction round, this round involves more emerging industries and private enterprises, relies more on legal frameworks and industry self-discipline, and may take longer.

Practical Next Steps for Founders

Foreign founders should monitor the publication of the unified national market regulation and the two lists, and review any local incentive arrangements for compliance with the evolving rules. Because implementation varies by region and industry, confirm details with local authorities and professional advisers before committing to a location or incentive package.

Need help navigating registration and operations? Foreign founders can contact ChinaMNC on WhatsApp / WeChat at +86 153 1898 8535 for help registering and operating a company in China.

This summary is based on information published by the relevant Chinese government website and is general information, not legal or tax advice.