Analysis of China's 2025 Foreign Investment Strategy
2025-03-13

With a virtual dearth of information in the Western press on China’s efforts to attract foreign investors, we researched the most recent policies encouraging foreign investment on a level playing field in China’s industrial sectors. This briefing is the result of our findings.

 

Executive Summary

China’s newly unveiled 2025 Stabilizing Foreign Investment Action Plan (hereafter “the Plan”) and complementary policies from the 2025 Two Sessions signal a renewed commitment to high-level openness. These measures aim to address systemic challenges while creating a fertile ground for foreign enterprises—particularly those yet to enter China—to capitalize on emerging opportunities in advanced manufacturing, green technology, digital innovation, and services. By dismantling barriers, enhancing market access, and refining the business ecosystem, China is positioning itself as a critical node in global value chains. PIM developed this analysis of the Plan’s key pillars and possible actionable pathways for foreign investors.

 

1. Policy Overview: A Dual Focus on Stability and Opportunity

The 2025 Stabilizing Foreign Investment Action Plan, approved by China’s State Council in February 2025, consolidates 20 policy initiatives across four dimensions: expanding market access, optimizing investment facilitation, strengthening service guarantees, and ensuring fair competition. Concurrently, the 2025 Government Work Report emphasized “stable foreign trade and investment” as a cornerstone of China’s high-quality development strategy, with pledges to deepen institutional openness and foster innovation-driven growth.

 

Key Pillars of the 2025 Action Plan

1. Broadened Market Access

   • Full Liberalization in Manufacturing: Following the 2024 removal of all foreign ownership restrictions in manufacturing, the Plan reinforces this by accelerating approvals for high-tech and green manufacturing projects (e.g., EV components, semiconductor R&D) and expanding tax incentives 

   • Services Sector Pilot Expansion: New openings in telecoms, healthcare, and education—previously restricted—are prioritized. For instance, foreign-owned hospitals and vocational training institutions will gain streamlined licensing in pilot zones like Shanghai and Guangdong.

   • Negative List Reduction: The 2025 version of the Encouraged Foreign Investment Catalogue will further trim restricted sectors, with a focus on AI, biotech, and renewable energy.

2. Enhanced Investment Facilitation

   • Reinvestment Incentives: Policies to simplify cross-border capital flows, reduce red tape for domestic reinvestment, and offer preferential loans for R&D-centric projects.

   • M&A Rule Optimization: Clearer guidelines for foreign acquisitions of Chinese firms, aimed at boosting strategic partnerships in advanced industries.

3. Leveling the Playing Field

   • Equal Participation in Procurement: A new “domestic production” standard ensures foreign-invested enterprises (FIEs) can compete equally in government tenders.

   • IP Protection Upgrades: Strengthened legal frameworks to safeguard patents and trade secrets, addressing long-standing investor concerns.

4. Ecosystem Support

   • Dedicated Project Teams: “One-stop” service platforms for major FDI projects (e.g., the $33 billion batch of FDI announced in Q1 2025) to expedite land use, permitting, and talent visas 

   • Cross-Border Data Flow Simplification: Pilot reforms in Suzhou and Beijing to ease compliance for multinationals handling sensitive data.

 

2. Strategic Opportunities for New Market Entrants

For foreign companies evaluating China entry, the Plan’s structural reforms and sector-specific openings present five high-potential pathways:

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A. Advanced Manufacturing & Supply Chain Integration

With 100% foreign ownership now permitted in all manufacturing subsectors, multinationals can establish wholly owned factories or JVs without local partnership mandates. Key opportunities include:

• Electric Vehicle Battery Production: Leverage China’s dominance in lithium refining and growing EV demand (40% of global sales by 2025).

• Semiconductor Equipment: Benefit from tax breaks for R&D centers in hubs like Wuxi, home to SK Hynix’s $10B chip plant 18.

Case in Point: Bosch’s $1.2B smart manufacturing base in Suzhou highlights how FIEs can integrate into China’s “Industry 4.0” ecosystem while accessing state-backed R&D subsidies 

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B. Green Transition Partnerships

China’s dual carbon goals (peak emissions by 2030, neutrality by 2060) are driving demand for foreign expertise in:

• Renewable Energy Infrastructure: Offshore wind, hydrogen storage, and carbon capture projects under the Plan’s “green manufacturing” incentives.

• Environmental, Social and Governance (ESG)-Aligned Investments: Joint ventures with SOEs for eco-industrial parks, supported by low-interest green bonds.

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C. Digital Economy & Innovation

The Plan’s focus on digital trade rules and AI commercialization opens doors for:

• Cloud Services & Data Centers: Pilot zones allow foreign firms to operate data infrastructure with relaxed cross-border data controls.

• Healthtech and Fintech: Partnerships with local tech giants (e.g., Tencent, Ant Group) to co-develop AI-driven diagnostics or blockchain payment solutions.

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D. Consumer Services Expansion

Pilot relaxations in healthcare and education enable FIEs to:

• Build premium hospitals targeting China’s aging population (e.g., Cleveland Clinic’s Shanghai joint venture).

• Launch vocational training programs aligned with AI and robotics skill gaps.

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E. Cross-Border Financial Services

The Plan’s push to simplify capital repatriation and encourage equity investments allows foreign asset managers and PE firms to:

• Establish wholly owned wealth management subsidiaries.

• Participate in China’s $12T pension market reforms.

 

3. Risks and Mitigation Strategies

While the Plan addresses historical pain points (e.g., IP protection, procurement bias), newcomers must navigate:

• Regulatory Complexity: Pilot policies vary by region; partnering with local consultancies is critical.

• Competition Intensity: Domestic champions (e.g., BYD, Huawei) dominate key sectors, necessitating niche positioning.

• Geopolitical Uncertainties: Diversifying supply chains and leveraging free trade zones. For instance, goods entering Hainan with a zero-tariff policy covering transportation vehicles, raw materials, production equipment, etc. as well as imported pharmaceuticals, and medical devices.

 

4. Conclusion: Timing the Entry

The 2025 Action Plan marks a watershed in China’s FDI landscape. For foreign firms, early movers in high-growth sectors (e.g., green tech, smart manufacturing) will secure first-maker advantages, while late entrants risk ceding ground to agile competitors. Success hinges on aligning with China’s policy priorities—innovation, sustainability, and consumption upgrade—while leveraging the Plan’s guarantees for fair competition and operational ease.

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PIM’s Recommendations for New Entrants:

1. Target Pilot Zones: Prioritize cities like Suzhou (Biotech), Shenzhen (Digital Trade), and Xi’an (Renewables) for regulatory flexibility.

2. Leverage State-Backed Incentives: Apply for R&D tax credits (up to 200% deductions in some zones) and green manufacturing grants.

3. Build Local Alliances: Collaborate with domestic tech leaders, industry associations, and local governments’ economic development agencies to navigate market nuances.

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Sources: 

1. 2025 Stabilizing Foreign Investment Action Plan;

2. CCTV. com, China will take more practical and effective measures to stabilize foreign investment and continue to build the "Invest in China" brand

3. The Xinhua News Agency, Observation of the Two Sessions · New Policy Trends in 2025 | Strengthening and Stabilizing Foreign Trade, Stabilizing Foreign Investment, and Further Opening up at a High Level.

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For enquires on this article, or other China policy issues, you may  contact tomward@pimchina.com