In April 2025, an updated Market Access Negative List reduced restricted fields from 117 to 106 across 21 industries, while simultaneously introducing new approval requirements in sensitive areas such as civil unmanned aerial vehicles and non-commercial internet information services. That same month, MOFCOM expanded the services sector opening pilot to nine additional cities, covering 155 task areas spanning telecommunications, healthcare, finance, cultural services and logistics. In June 2025, China introduced a 10% tax credit on reinvested profits for foreign investors channeling capital into encouraged industries, applicable from 2025 to 2028. In July 2025, the NDRC issued further measures facilitating domestic reinvestment by foreign-invested enterprises, including simplified land procurement processes and the creation of “green channels” for affiliate loans and Panda bond issuance. In December 2025, China released the 2025 Catalogue of Encouraged Industries for Foreign Investment (effective February 1, 2026), expanding the total number of entries to 1,679 – with 205 net new categories – and aligning investment priorities with China’s 15th Five-Year Plan (2026–2030), including artificial intelligence, quantum computing, humanoid robotics and sixth-generation telecommunications infrastructure. The most consequential development of the past year, however, was an enforcement action rather than a legislative initiative. On April 27, 2026, the FISR publicly announced the first-ever disclosed prohibition under the regime, blocking a proposed acquisition by a major U.S. technology company of a China-origin artificial intelligence company that had previously undergone an offshore restructuring into a Singapore/Cayman holding structure. The FISR applied a substance- over-form analysis – examining the origin of the technology, the manner in which intellectual property had been transferred offshore, and the prior development of the engineering team within China – to assert jurisdiction notwithstanding the target company’s offshore domicile. The public disclosure of the decision was itself a deliberate policy signal: “China-shedding” restructurings and acqui-hire arrangements will not, by themselves, take a transaction outside the reach of FISR. Taken together, these developments indicate a parallel approach: reaffirming national security priorities while actively encouraging foreign capital in sectors aligned with China’s broader industrial goals. The FDI regime remains dynamic and responsive to both geopolitical conditions and internal growth needs, suggesting continued dual-tracking of liberalization and control. Looking ahead to 2026, the April 2026 prohibition marks the beginning of a more assertive, publicly visible enforcement phase for China’s FISR regime. Foreign investors– particularly those in the artificial intelligence, data, and advanced technology sectors – should expect heightened scrutiny of cross-border M&A, including transactions structured offshore or as acqui-hires involving China-origin teams or intellectual property. Further implementing rules and guidance on the FISR regime are anticipated, as are regulations designed to operationalize the 2025 Encouraged Industries Catalogue and direct foreign capital into priority sectors under the 15th Five-Year Plan. The defining tension of China’s FDI landscape in 2026 will remain the simultaneous pursuit of liberalization and enforcement.
China
23
Powered by FlippingBook