China Law Library

Foreign Investment FAQ


Contents

Business Investment

Individual Investment

Public Policy

Business Investment

Is China open to foreign investment?

Yes, China has passed policies intended to make it fully open to foreign investment. The national cabinet passed a directive ordering expansive facilitation of foreign investment, and foreign investment regulation that includes multiple enforcement options to ensure equal national treatment. English versions of the comprehensive China investment law and policy are available at our China foreign investment law library page. Continue reading below to  get an overview of this topic.

What is China’s policy on foreign direct investment?

China’s most recent executive policy directive on foreign investment was issued by the Prime Minister’s office in 2019, and you can read our English translation of this Opinion No. 23 it here.  A brief summary is that all Chinese government bodies are requires to help both increase the degree of internationalization of Chinese business domestically, and to increase FDI inflows specifically. Secondly, the executive order opines that rigorous legal protection be provided for foreign investors’ legal rights, ensuring that regulatory standards are closely and transparently followed.

What is China’s foreign investment regime?

In 2019, China passed a comprehensive foreign investment law anchored in its Foreign Investment Act (see translation) and Administrative Regulations, which prevent discrimination or appropriation of foreign investments except in unusual circumstances.  China’s foreign investment regime places two major limitations on foreign investment, that being a list of exceptions to the industries to which foreign companies are given access, and the requirement for a national security review and annual reporting to facilitate that review.

Failure to report foreign investments as required are subject to a maximum 500,000CNY fine.

Authoritative information about the role of the annual reporting can be found in our translation of the Commerce Ministry’s statements, in addition to the official walkthrough on the specifics of how procedures are completed.

What is China’s negative list for foreign investment access?

China’s negative list for foreign investment action is a confusing Chinglish of the original Chinese due to literalism. Many confused internet articles are written about China’s negative list, by writers with poor language skills.

The Chinese legislative history and law itself specify the NAFTA approach of using a list of exceptions to blanket market is used by the Chinese law.  The Chinese government does maintain separate negative and positive lists for investment, which are periodically incorporated into the Foreign Investment Act regulations and other local regulations.

To gain a fuller understanding of what kind of business is closed to foreigners in China, see our translation of the authoritative Chinese government guidance on exceptions to market access.

Does China discriminate against foreign investors?

Not legally. The 2019 Foreign Investment Act as of 2019 requires “national treatment” of foreign investors, which means that regulatory agencies and courts in all cases must treat a foreign investor the same or better as a Chinese investor.

The Administrative Regulations in Section 35 and several other places prohibit discrimination in areas ranging from licensing to government procurement, which can be seen in our translation to English.

Moreover, the law provides two enforcement mechanisms to prevent discrimination against foreign investors.  First, the Act itself in Section 39 (see our translation) provides that administrative agency employee who discriminates faces warnings, termination, or even criminal penalty for discrimination.

Second, foreign investors who fear that they may be discriminated against in a certain region have the option to classify as a domestic Chinese investor business. The Supreme Court rules on foreign investment law in Section 14 provide recognition for nominee shareholder agreements and you can read our translation of those rules here.

As noted in the above question, Chinese law does have a list of exceptions as to what industries into which foreign investors may invest. You can find a copy of the list here, for example investment in rare earths is prohibited because policymakers consider it a strategic resource.

Chinese law also recognizes the reality of government agent non-compliance and offers an additional level assurance described in the next question.

I’m concerned Chinese regulators discriminate against my businesses. Is there a solution?

China’s Foreign Investment Act explicitly sanctions a mechanism to hide your foreign company status in order to avoid discrimination. Under the Supreme Court Rules governing foreign investment law, a nominee agreement appointing a Chinese citizen as trustee of the company shares, must be enforced by the courts. Under a Chinese nominee agreement, the Chinese citizen would hold the shares and be the registered shareholder while a foreign company or investor can be designated the beneficial owner of the shares. The regulators in the local jurisdiction will only see a Chinese company when they are inspecting the company’s operations, and therefore even if they did have discriminatory intentions that violate the Foreign Investment Act national treatment guarantees, they would not be able to carry them out.

Use of a nominee agreement is nonetheless very risky because you could lose rights to the company and its assets due to fraud, marital community property division, or inheritance. Personal liability could be imposed on the nominee shareholder, and the nominee shareholder’s dishonest conduct could result in joint and several liability that causes a surprise exit ban to stop you from leaving the country. You can learn more about these in our guide to the risks involved with nominee shareholders.

Finally, if not careful, Chinese regulators could see your use of a nominee agreement as an attempt to illegally circumvent the Investment Access Exceptions List, which provides a number of exceptions to the industries that foreign investors are allowed to be involved with. Learn more about that topic in our guide to nominee shareholder risks under foreign investment law.

How does China encourage foreign investment?

In addition to the above foreign investment law, China authorizes several monetary incentives for foreign investment. Income tax rates for businesses may be lowered to 15% for specific industries, such as the technology sector. Tax credits are offered on profit reinvestment and for research & development costs. Foreign employees are entitled to tax-free payment for meal, lodging, and several other cost of living expenses. Local governments are also authorized to offer their own package of incentives. The best way to get up to date information on investment incentives is to call the appropriate local government agency for the latest information, which can be done anonymously. Please contact us if you need help collecting and translating regional information.

Can I legally use a VPN for business in China?

Yes, there is a legally compliant way to use VPNs for your business in China.  However, the field is highly regulated and non-compliance could result in regulatory penalties and even criminal charges. In particular, if whoever you are permitting use your company VPN uses it unlawfully, whether for a fraudulent moonlighting operation, unlicensed freelancing, or a politically incorrect soapbox, you could personally face criminal penalties for aiding and abetting. Therefore, a business will need to impose a compliance program to ensure that the VPN is set up and operated in a lawful manner. Due diligence on the VPN provider’s telecommunication license classification in additional to network-level controls and monitoring is essential to remain compliance.

See our guide to VPN Compliance in China to get a full picture of how this can be achieved.

How do the special cross-border transfer rules in Hainan Province work?

An array of new options for making foreign exchange capital transfers has been offered in Hainan. This law in China allows foreign-owned entities to transfer capital, repatriate profits, and borrow foreign debt within set quotas, provided they complete the necessary foreign exchange filings and follow the new requirements (described in a separate article here). Additionally, cross-border capital pooling and debt borrowing options are available for multinational corporations and small to medium businesses in Hainan.

Chinese business partners may also be involved, and qualify for foreign investor treatment. Chinese residents must use a domestic business entity with a foreign SPV for foreign investment, and make numerous special FOREX, tax, and capital control filings. These rules can be used for businesses A foreign seller of a China-registered company must convert the business to Chinese ownership, complete foreign exchange filings, handle tax withholding, and follow a structured process for cross-border remittance and equity assignment.

To learn more about these regulations, see our explainer.

The Hengqin FTZ has been promoted recently. What is its policy?

The Hengqin FTZ in Guangdong-Macao offers investment incentives, including subsidies, a double 15% tax exemption and visa facilitation, to attract high-tech companies in sectors like semiconductors, microelectronics, and the digital economy, with a focus on financial services and a robust technology ecosystem. Some industry-specific FDI incentives are offered, with a focus on domestic companies in sectors like education, healthcare, and telecommunications. The FTZ offers tax incentives, including a double 15% business income tax reduction for qualifying industries and a personal income tax exemption for foreign talent. The Hengqin FTZ provides for technology R&D and high-tech manufacturing, including financial support for small businesses and unicorn startups.

Conditions and limitations apply. To qualify for Hengqin FTZ incentives, businesses must meet a “physical presence” requirement, which mandates that production, staffing, financing, and assets are located within the FTZ. Exceptions allow some external operations to qualify if the management office is inside the FTZ.

Detailed regulations issued between 2022 and 2024 define specific eligibility criteria, which we cover in detail in our explainer on Hengqin.

How do the special cross border transfer rules in Hainan Province work?

An array of new options for making foreign exchange capital transfers has been offered in Hainan. This law in China allows foreign-owned entities to transfer capital, repatriate profits, and borrow foreign debt within set quotas, provided they complete the necessary foreign exchange filings and follow the new requirements (described in a separate article here). Additionally, cross-border capital pooling and debt borrowing options are available for multinational corporations and small to medium businesses in Hainan.

Chinese business partners may also be involved, and qualify for foreign investor treatment. Chinese residents must use a domestic business entity with a foreign SPV for foreign investment, and make numerous special FOREX, tax, and capital control filings. These rules can be used for businesses A foreign seller of a China-registered company must convert the business to Chinese ownership, complete foreign exchange filings, handle tax withholding, and follow a structured process for cross-border remittance and equity assignment.

To learn more about these regulations, see our explainer.

When will internet and cloud platform services be legal to offer by foreign companies?

Currently, internet data center (IDC), internet service providers (ISP), cloud platforms and some SaaS are defined as telecommunication services, an industry which is totally closed off to foreign investors. IDC, ISP, cloud, and SaaS are each defined as “value added” telecommunication services in China, which places them outside the Network Service Provider (NSP) classification. A 2024 central government mandate now requires certain regions in China to allow access to value added telecommunication services, meaning that foreign IDC, ISP, cloud, and SaaS businesses will be allowed in China.  The rules are complex and full of exceptions and limitations, so we have put together an explainer to help you understand the new Chinese rules on internet and cloud services.

What is China’s Qualified Foreign Limited Partnership (QFLP) program?

A Qualified Foreign Limited Partnership is a fictional label given to local government programs that in Chinese are characterized as a foreign owned entity used to manage equity investments. The label was used because foreign companies could not understand what the initial mistranslation “foreign invested equity investment enterprise” means and thus borrowed phrases from American law. There is no partnership requirement, no foreign requirement to participate, and Chinese law does not recognize or mention the “qualified” part. A QFLP may be a different kind of entity such as LLC, although LPs are more popular, but banking rules usually require to treat a QFLP LP as an LLC, much to fund managers’ surprise.  Instead, a QFLP is an investment vehicle classification that is provided special rules intended to encourage foreign investments into China.

A famous example is the Blackrock QFLP fund in Shanghai, which is managed by Blackrock, is subject to special rules making their involvement easier, but also involves a lot of domestic investors.

QFLPs are governed by a mix of local law, private equity, foreign investment reporting, foreign exchange, and investment access exceptions. We have a detailed walkthrough of all these issues in our article on QFLPs.

Individual Investment

Can an American invest in the Chinese stock market?

Any foreigners including Americans are allowed to invest in the Chinese stock market by opening an account with a securities brokerage where they can purchase A Shares, if they wall into one of the following categories:

  1. They have a permanent resident card.
  2. A foreigner who lists a corporation in China that issues A shares may purchase that company’s A Shares to be held in its brokerage account.
  3. Foreign employees of a corporation listed on a Chinese stock exchange that are working in China and offered a stock incentive plan may hold those stocks in a brokerage account.

In order to open a brokerage account, the foreigner needs to have three different business documents affixed with their employer’s seal: employment verification, proof of tax payment, and a copy of the company’s business certificate. Then, the foreigner must fill out a Securities Brokerage Account Application Form with their passport and copies of the passport and these business documents, and if applicable copies of documentation of their stock incentive plan.

Does China allow foreigners to own property?

Foreigners are allowed to purchase property in China if they can provide the following documents.  Firstly, they need to provide a passport that has a residence permit in it, but as an alternative a government notarized translation of the passport information may be provided.

Secondly, the foreigner must provide documentation about their activities in China, specifically that they have been engaged in work or a program of study for more than one year. This can be shown with an employment contract or visa.

For newly built properties being sold to an initial owner, there are different requirements from previously owned homes.

  1. Where there are two or more owners, an application for joint ownership must be filled, and if a party lacks civil law capacity, proof of guardianship and copies of the guardian’s ID Card (or passport) must be provided. 2. The government must issue a Transnational Legal Review Letter. 3. Documentation of the property’s dimensions. The above documents are provided to the local government’s real estate transaction center.

When purchasing a previously owned home from an existing owner, there are additional requirements.

A real estate appraisal report for the property must be obtained, along with a notarization of the contract of purchase and sale. It’s helpful to note that China has a large amount of new, high-density housing stock that is build in large parcels by single developers working closely with the government, therefore, transactions with the developer are regulated differently than when buying from an individual owner.

Foreigners are entitled to take out a home loan if they can provide the following documents.

  1. Identification documents as described above 2. Proof of payment for the down payment 3. Borrower’s proof of income, educational background, and creditworthiness. 4. Marital status documentation, i.e. either a Marriage Certificate or proof of single status. Where one spouse has the other take out a loan on behalf of the other, a Power of Attorney must be provided. Such documentation should be legalized by an embassy or consulate; this can be the foreign country’s office in China, or the Chinese office in the foreign country.

When hiring a real estate agent to help purchase property, you need to get government notarization of a power of attorney providing for the agent’s limitation of authority and term of principal-agent relationship; this is essential to prevent harm caused by poorly defined agent-principal relationships. A notary public in a foreign country can also notarize the document which is then legalized by the Chinese consular staff in that country.

In summary of the above rules, foreigners must meet certain conditions to buy property. Proof of identity or guardianship is needed. A previously owned home requires the contract be notarized.  Loans are available with the relevant economic proofs. The government will also check for potential transnational crime risks before approving a sale.

Public Policy

What is China’s common prosperity policy?

Many foreign investors wonder if putting wealth into a Communist led country is safe; the common prosperity policy is meant to provide political guarantees as to asset security.  China’s common prosperity policy is an economic theory that is closely tied to the semantics of its Mandarin Chinese components, Gongtong Fu Yu.  In this phrase, “Fu” means having a substantial number of assets, and when combined to make “Fu Yu” (prosperity) refers to having a significant amount of money, material wealth, housing, land, and other types of wealth.

The opposite of this view of prosperity is poverty characterized by lack of money, material wealth, housing, and land. “Common Prosperity” (Gongtong Fu Yu) refers to where all people generally can obtain prosperity (Fu Yu), but the policy envisioned by Deng Xiaoping is that “some people must prosper first,” wherein a portion of the people will first prosper, and they will then use their resources to help others prosper, ultimately achieving common prosperity.

Therefore, the Common Prosperity ideal differs from the postwar Communist Revolution period which sought to achieve immediate, absolute equal division of wealth.

Contemporary thinking about common prosperity in China rejects the notion of the equal distribution of resources, which it associates with the disasters faced by both the early American colonies imposing Christian utopianism, and also the Chinese 19th century Taiping Heavenly Kingdom, which also attempted to establish an economy based on an equal distribution of wealth, also a Christian Utopian vision.

China’s President, Xi Jinping, pointed out in a crucial speech that “Xianbing does not fall from the heavens”–which is juxtaposed with the Taiping Heavenly Kingdom’s belief that “Manna falls from the heavens.”

Therefore, the common prosperity ideal from Chinese Communist thought does not refer to the equal distribution of wealth. Chinese Marxism believes that common prosperity is composed of two elements, that being a fair distribution of wealth achieved by reducing social inequality, and second, a strong economic support base with which to create wealth.

Chinese Marxists believe that the first phase of development towards Communism involves a common prosperity where workers create wealth and gain a fair share of property based on their labor contribution. In an advanced stage of Communist society, common prosperity refers to distribution of wealth to meet the needs of every person, based on society’s ownership of the means of production.

For more information about foreign investment policy and law, take a look at our comprehensive collection of China foreign investment law and policy information in clear, accessible English.

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