Published by ChinaMNC · Luohe

China’s New Rules on Local Investment Incentives: What Foreign Founders Need to Know

China is rolling out new rules to standardize local investment incentives and curb “involutionary” competition. For foreign founders, this means clearer rules for company registration, subsidies, and compliance when setting up in China.

Key takeaway: China is moving to standardize local investment incentives and curb “involutionary” (neijuan) competition. For foreign founders, this means more predictable rules for company registration, subsidies, and compliance—but also tighter scrutiny of preferential deals. Understanding these changes can help you structure your China entity and negotiate with local governments more effectively.

What is happening?

Multiple Chinese government departments—including the National Development and Reform Commission (NDRC), Ministry of Finance, Ministry of Industry and Information Technology (MIIT), and State Administration for Market Regulation (SAMR)—are deploying measures to deepen the construction of a unified national market and tackle “involutionary” competition. Unlike previous campaigns, these efforts focus on institutional reforms to optimize competition mechanisms rather than mere administrative crackdowns.

According to the source, policy documents such as the Regulations on the Construction of a Unified National Market, a list of matters hindering the unified national market, and a list of encouraged and prohibited items for investment promotion are expected to be introduced. These will provide more legal and institutional support for “anti-involution” efforts.

Why it matters for your China company registration

When registering a company in China, foreign founders often encounter local investment incentives—tax breaks, subsidies, or land deals—offered by local governments to attract investment. These incentives can significantly affect your setup costs and ongoing operations. However, the new policies aim to standardize such incentives, drawing clearer boundaries between what local governments can and cannot offer.

For you, this means:

• More transparency: Local governments will have clearer guidelines on permissible incentives, reducing the risk of unexpected clawbacks or legal issues.
• Level playing field: The rules aim to prevent distortions caused by excessive incentives, which could benefit foreign founders who prefer to compete on merits rather than navigating opaque deals.
• Compliance focus: You’ll need to ensure any incentives you receive comply with the new rules. Verbal promises or “drawer agreements” (side letters) may be invalid.

Key policy measures

The NDRC will focus on advancing the unified national market, with priorities including:

• Comprehensively rectifying “involutionary” competition, shifting from price wars to value optimization.
• Strengthening capacity regulation to address阶段性 supply-demand imbalances.
• Refining the boundaries of encouraged and prohibited items for local investment promotion.
• Enhancing price supervision in key industries and governing low-price disorderly competition according to law.

For foreign founders, these measures suggest that local governments will be more cautious about offering overly generous incentives, and that regulatory oversight on pricing and competition will increase. When registering your company, you should factor in potential changes to incentive packages.

Regulating local government economic promotion behavior

The Fourth Plenary Session of the 20th Central Committee emphasized standardizing local government economic promotion behavior and breaking down local protection and market segmentation. In 2025, SAMR investigated 96 cases and concluded 75 cases related to abuse of administrative power to exclude or restrict competition.

For your registration process, this means local authorities are under pressure to treat all enterprises fairly. If you encounter discriminatory treatment or unreasonable restrictions during registration or operations, you may have stronger grounds to challenge them.

Fiscal subsidies under scrutiny

The Ministry of Finance has formed a cross-departmental task force to rectify irregular local fiscal subsidies. In 2025, it carried out special rectification. Next steps include improving information sharing, regulatory coordination, and a standardized management system for fiscal subsidies. Local governments will be held accountable, and violations will be corrected as discovered.

When negotiating subsidies for your China entity, ensure they are documented and compliant. Avoid relying on informal promises.

Impact on investment promotion lists

The NDRC plans to formulate a unified national list of local investment promotion behaviors, specifying encouraged and prohibited actions. It will also guide localities to optimize assessment mechanisms for investment promotion, setting realistic quantitative targets and preventing unrealistic层层加码 (layer-by-layer amplification).

The Central Financial and Economic Affairs Office has indicated that in 2026, a list of encouraged and prohibited items for local investment promotion will be accelerated to draw red lines. It will also crack down on disguised violations through “drawer agreements” and regulate enterprise-related law enforcement.

For foreign founders, this means:

• Clarity on incentives: You can expect a clearer framework for what local governments can offer. Use this to negotiate confidently.
• Risk of invalid agreements: Any incentive not on the approved list may be unenforceable. Insist on written, compliant terms.
• Due diligence: Verify that promised incentives are lawful and included in official documents.

Local actions

Provinces like Shandong and Fujian are already taking steps. Shandong aims to integrate into the unified national market, standardize investment promotion, and reform the “access, scenarios, factors” integration. Fujian focuses on breaking down barriers, improving the business environment, and regulating investment promotion and bidding.

These local actions may affect how your registration is handled. For instance, if you register in these provinces, you might experience more streamlined procedures and fewer arbitrary requirements.

Sector-specific implications

The MIIT is strengthening capacity monitoring and governance in key industries. On January 7, four departments held a symposium on power and energy storage battery industries, noting blind construction and irrational competition. On January 13, the MIIT convened a meeting on energy-saving and new energy vehicle industry, emphasizing cost investigation, price monitoring, and quality checks.

If you are registering a company in these sectors, be prepared for stricter compliance requirements and possibly more scrutiny during registration. However, these measures aim to create a healthier competitive environment, which can benefit long-term players.

Expert views

Luo Zhiheng, chief economist at Yuekai Securities, noted that local governments have a strong incentive to attract investment because VAT is shared based on production location. This has led to excessive competition. He suggests reforming the fiscal and tax systems to reshape incentives.

Zhang Jun, chief economist at China Galaxy Securities, pointed out that current policies focus on enhancing industrial core competitiveness and optimizing competition mechanisms, with more reliance on legal frameworks and industry self-discipline. The governance cycle may be longer.

For foreign founders, these insights suggest that while incentives may become less generous, the overall business environment could become more predictable and rule-based.

What to do next

When planning your China company registration:

• Stay informed: Monitor the release of the unified national market regulations and the investment promotion lists.
• Engage early: Discuss incentives with local authorities but insist on compliance with upcoming rules.
• Document everything: Ensure all agreements are in writing and align with published policies.
• Seek professional advice: Consult with legal and tax advisors familiar with the new policies.

These changes are part of China’s broader effort to create a fairer, more transparent market. By understanding them, you can navigate the registration process more smoothly and avoid pitfalls.

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

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