Overview of the Investment Climate

In recent years, China has demonstrated the following trends in attracting foreign investment:

1. Structural Adjustment in Investment Scale and Quality

In 2025, the number of newly established foreign-invested enterprises in China achieved year-on-year growth. While the capital injection experienced a year-on-year decline, China continued its journey on structural transformation.

From January to November 2025, manufacturing sector recorded RMB 171.72 billion in foreign investment, while the service sector saw RMB 506.29 billion injected. High-tech industries emerged as a bright spot, attracting RMB 221.26 billion in actual injection. Other sectors such as e-commerce services, medical equipment and instrument manufacturing, and aerospace vehicle and equipment manufacturing also recorded substantial growth, increasing by 127%, 46.5%, and 41.9% year-on-year respectively[1].

2. Continuous Policy Refinement and Deepening of Opening-Up

The Chinese government remains steadfast in advancing high-standard opening-up and continuously improving the investment climate for foreign businesses. The “Catalogue of Industries Encouraging Foreign Investment (2025 Edition)” was officially released on 15 December, 2025, and will take effect on 1 February, 2026. This edition contains a total of 1,679 entries, representing a net increase of 205 entries and revisions to 303 entries compared to the 2022 version, focuses on encouraging foreign investment in advanced manufacturing, modern services, and other sectors. Market access restrictions in areas such as finance, technology services, and information services are being progressively relaxed, offering broader development opportunities for foreign investment.

While the leading regions such as the Yangtze River Delta, the Guangdong-Hong Kong-Macao Greater Bay Area, and the Beijing-Tianjin-Hebei cluster continue to attract high-value activities like R&D and regional headquarters, benefiting from their established industrial ecosystems and innovation capacity, the new catalogue strengthens the guidance for investment in central and western regions, northeastern regions, and Hainan Free Trade Port.

3. Singaporean Companies in China

In 2025, Singapore’s actual investment in China maintained growth, placing it among the top three source countries/regions. Singaporean investment in China is accelerating its shift from traditional real estate and manufacturing towards higher value-added and technology-intensive sectors such as the digital economy, biomedicine, green energy, and financial services.

Based on our client portfolio, Singaporean companies investing in China are primarily attracted by the vast market of 1.4 billion consumers and the increasingly mature, high-quality professional talent pool, especially in the area of technology.

[1]Ministry of Commerce of PRC: 2025年1-11月全国吸收外资6931.8亿元人民币

Market Entry Considerations

When entering the Chinese market, foreign investors should choose an appropriate form of business organization based on their investment objectives and operational needs. Currently, the most

common forms include Wholly Foreign-Owned Enterprises (WFOE), Joint Ventures (JV), and Representative Offices (RO). To facilitate decision-making, the advantages and disadvantages of these three primary organizational forms are compared and summarized below. At present, WFOE has become the preferred form for most foreign investors.

To achieve success in the Chinese market, it is crucial to balance the parent company’s global business model and corporate culture with the strategic integration of China’s unique commercial practices and networks. By cultivating or empowering local teams to adapt and operate within the context of China’s business environment, foreign-invested enterprises can deepen their localization efforts, expand business bandwidth, enhance competitiveness, and drive sustainable growth in China.

Tax and Regulatory Landscape

In light of recent regulatory and administrative changes, investors are encouraged to exercise heightened attention to navigate the landscape for sustainable investments and new opportunities.

1. China’s Tax Framework: Legalization-Driven Certainty and Fair Market

China’s tax environment is undergoing a profound transformation, driven by the systematic advancement of tax legalization and the construction of a unified national market. As of 2026, 14 out of China’s 18 tax categories, including key taxes such as corporate income tax (CIT), value-added tax (VAT), and individual income tax (IIT), have been codified into law, complemented by the promulgation of the Tax Administration Law. This milestone signifies the full implementation of the principle of taxation by law, marking a pivotal shift toward rule-based governance. Simultaneously, the government is actively eliminating non-compliant local tax incentives and fiscal policies to harmonize tax practices nationwide, ensuring policy uniformity and legal certainty. These efforts collectively foster a transparent, predictable, and equitable business environment.

2. Tax Administration System: Digital Transformation and Intelligent Governance‌

China’s tax collection and administration system are undergoing a deep digital transformation, driven by the comprehensive rollout of the “Golden Tax Project Phase IV”. The system achieving intelligent linkage and real-time monitoring of data among different departments‌ including tax, banking, customs, and market supervision, to enable end-to-end supervision on any potential tax risk.

The system’s enhanced transparency and precision have raised compliance standards for taxpayers, mandating stricter adherence to tax regulations and proactive risk mitigation practices.

3. China’s Tax Incentive: Multi-Tiered Framework

China has a multi-tiered tax incentive framework designed to support strategic industries, develop key regions, and encourage the reinvestment of profits by foreign enterprises in China. Such as preferential CIT rate and R&D super-deduction for key industries such as High and New Tech Enterprises (“HNTE”) and Technology-Advanced Service Enterprise‌. Additionally, encouraged industries and qualified foreign individuals established in designated zones—including the Hainan Free Trade Port, Greater Bay Area, Shanghai Lingang New Area, and western region, benefit from favorable CIT and Individual Income Tax (IIT) treatments. For foreign reinvestment, tax credits can be claimed.

Practical Advice and Case Studies

Entering the Chinese market presents immense opportunities but also significant regulatory and operational complexities. Our firm recently supported our client, a dynamic foreign enterprise, in navigating this journey by establishing its operations in China. Our advisory and hand-holding execution services customized to achieve client’s objectives in China, helped transform their strategic vision into a fully compliant and operational entity.

The Client elected a Wholly Foreign-Owned Enterprise (WFOE) structure, the preferred vehicle for foreign investors seeking full control over their operations in China. It operates at the intersection of e-commerce services, IT technology and AI, developing a platform for B2B and B2C purpose. In structuring their business in China, the Client also expand to Beijing and Shenzhen to tap on a deep pool of highly skilled software engineers, data scientists, and digital marketing professionals.

As an advisor, we strongly believe that the client can created a digital advantage in their business as they compete in the most aggressive lifestyle industry.

There are 3 key take-aways for the SMEs entering China for the first time:

1. Business model and tax structure

Design your business model, operations and entity structure to achieve tax compliance and efficiency as a core strategy from the start. It is costly to fix inefficiency thereafter.

2. HR and talent management

One of the key success factors for foreign companies doing business in China is the localization of people. Foreign companies are encouraged to nurture local talent, while simultaneously embedding the Head Office’s culture into the team.

3. CFO Support

Head Office requires constant monitoring of its overseas operations and often lack professional guide to understand the complexity of China compliance and reporting. Outsourcing provides a good source of knowledge base in a cost-efficient manner.

Looking Ahead

The Chinese government will continue to guide foreign investment flows through macroeconomic policies. Sectors closely aligned with national strategies, such as advanced manufacturing, green technology, and the digital economy, will receive increased support.

Open platforms like the Shanghai Free Trade Zone and the Hainan Free Trade Port will progressively introduce facilitating measures.

Chinese business has been increasingly seeking globalization and Singapore is a popular regional hub for Chinese businesses. Singapore investors can identify these opportunities to collaborate cross-border in partnership and offering insights in doing international business.

For more information, please reach out to: info@sbasf.com