（1）Five areas, 15 measures: covering multiple stages from market entry and investment to operations and reinvestment

The five policy areas under the Action Plan are: expanding market access; enhancing foreign investment facilitation; improving investment promotion; strengthening the service and support system for foreign investment; and optimizing foreign investment administration. Rather than introducing a single set of incentives, the Action Plan addresses, within one policy framework, the common issues foreign investors face from market entry, transaction execution and project implementation through ongoing operations, reinvestment and business expansion. For foreign investors, the policy impact is twofold: expanding opportunities for investment and business operations, while reducing regulatory friction in transactions, capital flows, data and business operations.

（2）What Are the Benefits for Foreign Investors?

From the perspective of overseas investors, the policy benefits can be grouped into six categories.

(a)New opening-up and pilot opportunities in services, healthcare and pharmaceuticals, and financial services;

(b)Proposed revisions to the M&A rules, together with a proposal to allow eligible foreign PE firms to participate as strategic investors in securities offerings by listed companies in unrelated industries;

(c)Tax incentives for profit reinvestment and project services make it more attractive to reinvest profits in China;

(d)Further development of cross-border data rules toward scenario-based and field-level management and negative lists;

(e)More explicit policy support for foreign-invested R&D centers;

(f)Measures on national treatment, fair competition in government procurement and bidding, investment promotion commitments and services for major projects further strengthen fair and predictable conditions for foreign-invested enterprises after market entry.

These policy benefits do not mean that the relevant restrictions have been removed. Foreign M&A may still be subject to security review, merger control and sector-specific regulation; the new arrangements for foreign PE firms will still need to be aligned with existing securities regulatory rules; cross-border data flows remain subject to rules on personal information and important data; and opening-up in areas such as biotechnology and wholly foreign-owned hospitals remains on a pilot basis. For specific projects, enterprises should rely on implementing rules that are already in force.

2. Why Do the Rules Governing Foreign Investors’ M&A Transactions in China Need to Be Revised?

（1）Legacy M&A Rules Create Friction with Current Transaction Practice

The Action Plan expressly calls for accelerating revisions to the provisions governing foreign investors’ M&A of domestic enterprises, optimizing M&A procedures and consideration payment requirements, and strengthening interdepartmental regulatory coordination. This reflects a clear institutional background. The framework of the existing Provisions on the Merger and Acquisition of Domestic Enterprises by Foreign Investors (the “M&A Provisions”) was established in 2006 and revised in 2009, before the Foreign Investment Law of the People’s Republic of China took effect in 2020. MOFCOM clarified in a public response in 2024 that, following implementation of the Foreign Investment Law, the former MOFCOM approval regime no longer applies, but requirements under the M&A Provisions relating to transaction consideration, payment periods and cross-border share swaps remain applicable.

These transitional issues can directly affect transaction structures. For example, the current rules generally require a foreign investor to pay the full purchase consideration within three months from the date the business license of the foreign-invested enterprise established after the acquisition is issued. In special circumstances, with approval from the relevant authority, at least 60% must be paid within six months and the balance within one year. An acquisition providing for 80% payment at closing and a 20% performance-based adjustment two years later could therefore conflict with the existing payment periods. Likewise, in a typical acquisition of an unlisted domestic company, the buyer’s proposal to satisfy part of the consideration with shares of an unlisted offshore company may still be constrained by the M&A Provisions, which generally require an offshore company used for a cross-border share swap to be listed. Deferred payment, earn-outs and equity consideration are all common in modern cross-border M&A, making the Action Plan’s specific reference to “consideration payment requirements” particularly relevant in practice.

（2）Facilitation Does Not Mean Easing Security Review

Facilitating M&A procedures is distinct from national security, competition and sector-specific regulation. While the Action Plan calls for optimizing procedures and payment requirements, it also requires “strengthening interdepartmental regulatory coordination.” Foreign investors must therefore continue to assess, based on the specific transaction, the applicable foreign investment negative list, foreign investment security review, merger control, sectoral licensing, data and foreign exchange rules.

In April 2026, the Office of the Foreign Investment Security Review Working Mechanism issued a decision prohibiting the foreign investment acquisition of Manus and required the transaction to be unwound. The case shows that stabilizing foreign investment does not mean weaker scrutiny of sensitive transactions. In practice, enterprises should identify before signing whether a transaction involves national security, critical technologies, important data or other sensitive factors, and reflect the relevant approvals, reviews and timing implications in the transaction conditions and closing arrangements.

The Action Plan proposes allowing eligible foreign equity investment institutions to participate as strategic investors in securities offerings by listed companies in unrelated industries. For foreign PE firms, the key point is not simply that they may “buy A-shares” in the future—foreign investors already have access through channels such as QFII, Stock Connect and strategic investment in listed companies—but that the policy expressly contemplates expanding the role of foreign PE firms as strategic investors beyond related industries.

Historically, strategic investors have generally been expected to have important strategic resources in the same or a related industry as the listed company. This standard fits industrial investors more readily than global PE firms. Although PE firms do not themselves manufacture cars, pharmaceuticals or industrial equipment, they can create value through long-term capital, corporate governance, M&A integration and global networks. The reference to “unrelated industries” is therefore significant because strategic value is no longer based entirely on industrial alignment.

This development is consistent with the direction of China’s 2026 capital-market reforms. Under the strategic-investor regime for refinancing, the China Securities Regulatory Commission has distinguished certain long-term institutional investors as “capital investors” and “industrial investors.” Capital investors are no longer required to have strategic resources in the same or a related industry, but are still expected to hold their investment for the long term, generally meet a prescribed shareholding threshold, participate in corporate governance and contribute strategic resources in practice.

For foreign PE firms, the benefit is a clearer pathway for professional capital that is willing to hold investments for a longer term, participate in governance and contribute resource-integration capabilities. In the past, even where a PE firm could bring governance improvements, M&A capabilities or global commercial resources to a listed company, it might have been difficult to fit within the existing rules because of the emphasis placed on the industry relevance of strategic resources. This policy direction seeks to address that mismatch.

The Action Plan currently sets out a policy direction rather than detailed eligibility rules. How “eligible” foreign PE firms will be determined and how the new arrangement will interface with the existing strategic-investor rules remain to be clarified. A more cautious reading is that China is placing greater value on the strategic contribution of professional long-term capital, but this does not mean that all foreign PE firms automatically qualify as strategic investors in listed companies.

The Action Plan calls for implementing the tax incentives for overseas investors that directly reinvest distributed profits and for including more reinvestment projects by foreign-invested enterprises in the list of major and key foreign investment projects. The key word here is “implement,” rather than “introduce,” because the profit-reinvestment incentives already comprise two existing regimes.

The first layer is the tax deferral introduced in 2018. Where an overseas investor receives profits from a Chinese resident enterprise and directly uses those profits for qualifying domestic investment, the relevant withholding income tax may be deferred. The 2018 policy expanded the scope to all projects and sectors not prohibited to foreign investment. Qualifying investments may include capital increases, establishment of new enterprises and acquisitions of equity in Chinese resident enterprises from unrelated parties. Shares in listed companies are generally excluded, subject to an exception for qualifying strategic investments. “Deferred” means that the tax is not permanently exempted.

The second layer is the tax credit introduced in 2025. From January 1, 2025 through December 31, 2028, qualifying profit reinvestments may generate a tax credit equal to 10% of the investment amount, or, where applicable, the investor may opt for a dividend withholding tax rate below 10% under an applicable tax treaty. The investee enterprise must engage in an industry listed in the national encouraged category of the Catalogue of Industries for Encouraging Foreign Investment, and the investment generally must be held continuously for at least five years.

（1）Why Emphasize “Implementation” Again in 2026 if the Incentives Already Exist?

“Implementation” signals a shift in policy focus from establishing incentives to increasing their actual use. For overseas investors that already plan to increase capital, establish new projects or acquire equity in China, reinvesting profits distributed by Chinese subsidiaries may, if the conditions are met, allow both tax deferral and the new tax credit, while avoiding the circular flow of first remitting funds offshore and then reinvesting them.

The Action Plan also proposes including more reinvestment projects by foreign-invested enterprises in the list of major and key foreign investment projects. This shows that the reinvestment policy is not focused solely on tax, but also on project implementation and support services. In practice, enterprises should model their planned capital increases, M&A and new projects in China alongside profit remittance arrangements before deciding on dividends.

（2）Tax Incentives Are Not Cash Subsidies

Tax incentives can reduce the cost of qualifying reinvestment, but they do not replace the commercial assessment of the underlying project. Enterprises should still compare growth prospects, returns on capital, funding needs and exit options across markets.

The 10% “credit amount” should not be treated as a 10% cash subsidy. Under the current implementing rules, the credit is used to offset Chinese enterprise income tax arising from dividends, interest, royalties and other income received by the overseas investor from the same profit-distributing enterprise after the reinvestment, with the credits tracked separately for each profit-distributing enterprise. Its actual value therefore depends on whether sufficient future tax liabilities arise against which the credit can be applied.

The tax credit also generally requires the reinvestment to be held continuously for five years. If the investment is recovered before five years, the credit may need to be reduced and the corresponding tax paid. The 2018 tax deferral likewise does not amount to a permanent exemption; the tax is merely deferred and must be reported and paid if the overseas investor subsequently recovers the investment. Before using these incentives, enterprises should factor the expected holding period and future restructuring or exit plans into their assessment.

The Action Plan supports free trade zones and cities designated as pilot areas for expanding opening-up in services in formulating scenario-based and field-level negative lists for outbound data transfers in more areas, and promotes national standards for identifying important data in industries such as industry, telecommunications, geographic information, automobiles, pharmaceuticals, seed production, aerospace and civil aviation. The significance lies not in removing China’s data regulation, but in making the regulatory boundaries more identifiable.

The 2024 Provisions on Facilitating and Regulating Cross-Border Data Flows introduced a first round of significant facilitation measures, including exemptions or simplified arrangements for certain scenarios involving international trade, multinational manufacturing and cross-border human resources management; a higher threshold for triggering personal information transfer requirements; and clarification that enterprises need not independently declare data for a security assessment as important data where the relevant authorities or regions have not notified or publicly identified it as such. Free trade zones may also formulate negative lists for outbound data transfers. Data published by the Cyberspace Administration of China in 2025 showed a significant decline in the number of security assessments and standard contract filings.

（1）The Next-Stage Bottleneck: How Clearly Important Data and Business Fields Can Be Identified

For multinational companies, cross-border data issues are no longer simply a question of whether the compliance function must file for a security assessment. Global ERP, CRM, HR, R&D collaboration, cybersecurity, supply chain and after-sales systems may all involve cross-border data flows. If enterprises cannot determine in advance which fields constitute important data, personal information or other specially regulated data, they may face higher costs for system segmentation and localization, as well as reduced coordination between China operations and global headquarters in R&D, procurement and risk management.

Against this background, “scenario-based” and “field-level” are particularly important concepts in this policy package. If the rules further clarify which data fields require special controls in different business scenarios, enterprises can decide earlier which data may enter global systems, which must remain in China or be subject to additional procedures, rather than making adjustments after system deployment.

（2）The Key Question: Can the Rules Remain Consistent as the Boundaries Become Clearer?

For enterprises, two questions are particularly important. First, which data will be expressly identified as important data, and can the enterprise determine this before system design and business launch? Second, can negative lists and identification standards across regions and industries remain sufficiently consistent to avoid materially different treatment of similar businesses based solely on location?

The Cyberspace Administration of China has promoted alignment of free trade zone negative lists under the principle that a list formulated in one location may serve as a reference for others, while continuing to expand their coverage. This approach may help reduce overlapping rules. For specific projects, enterprises should still review the national rules on outbound data transfers, applicable industry standards and the negative list of the relevant location.

The direction of the Action Plan is therefore not to remove data security regulation, but to make the rules governing cross-border data flows more identifiable and predictable. For multinational companies, the most direct benefit is the ability to determine earlier which data may enter global systems and which must remain in China or undergo additional procedures.

The Action Plan expressly calls for “strong efforts to attract foreign-invested enterprises to establish R&D centers in China” and provides support in areas including high-level foreign talent, open innovation platforms, commercialization of research results and imports of scientific research supplies. MOFCOM has also referred in its policy interpretation to attracting foreign-invested enterprises to establish regional headquarters, R&D centers and other functional platforms. For multinational companies with a substantial business presence in China, this means R&D and headquarters functions can be reassessed alongside new investment plans.

It is important to distinguish among foreign-invested investment companies, regional headquarters and foreign-invested R&D centers, which are not the same legal concept. Regional headquarters and R&D centers generally involve local qualification criteria and support policies, while foreign-invested investment companies are a distinct corporate and investment arrangement. The Action Plan itself does not establish a new nationwide regime for “headquarters” or investment companies.

Enterprises should therefore start with the functions they need rather than a particular institutional label. Groups with multiple Chinese subsidiaries, ongoing M&A and reinvestment, or centralized R&D and shared-service needs may compare different platform structures and city-level policies; businesses with simpler structures generally have little reason to add another layer solely to obtain a policy designation.

The Action Plan does not create a single opening-up window covering all industries. The clearer opportunities are concentrated in services opening-up pilots, healthcare and pharmaceuticals, financial services, and R&D and encouraged industries. With foreign investment restrictions in manufacturing already removed, further benefits for advanced manufacturing and high technology are more likely to come from the encouraged-industry catalogue, R&D support and local industrial policies than from new market-access liberalization.

8.Five Things Overseas Investors Should Review Now

The Action Plan affects transactions, capital, data and functional structures alike. For overseas investors already operating in China or considering new investments, the most practical step is to conduct a focused review around the following five issues.

First, check whether an M&A project is constrained by the legacy rules. For ongoing or proposed acquisitions in China, review in particular consideration payment arrangements—especially the use of offshore company shares as consideration—foreign investment access, security review, merger control and sectoral licensing, and continue to monitor the revised M&A rules.

Second, assess strategic-investment opportunities for foreign PE firms. Eligible international PE firms may monitor opportunities to participate in securities offerings by listed companies, but until the implementing rules are clarified, transaction feasibility should be assessed under the existing strategic-investment and refinancing rules.

Third, compare “remittance” and “reinvestment” before declaring dividends. Model planned capital increases, new projects and equity acquisitions in China together with profit distributions, and check the requirements for tax deferral, tax credits, encouraged industries and holding periods.

Fourth, address cross-border data issues at the project-design stage. Map the business scenarios and data fields involved in major systems such as ERP, CRM, HR, R&D, supply chain and cybersecurity, and review the national rules, industry standards and applicable free trade zone negative lists.

Fifth, assess whether the functional footprint in China matches the business. For groups with ongoing R&D, M&A, reinvestment or shared-service needs, compare the functions, local requirements and management costs of R&D centers, regional headquarters and other investment-management arrangements.

These issues are interconnected: M&A structures affect funding arrangements, tax policies affect reinvestment returns, data rules affect global operations, and industry and local policies affect project implementation. Major investment projects should therefore be assessed jointly by the business, finance, tax, legal and data teams on a common set of assumptions.

The incremental value of the Action Plan lies in improving how foreign capital enters China, how capital is retained and redeployed, the predictability of cross-border data flows, and the conditions for high-value functions such as R&D to be established in China. M&A, foreign PE, profit reinvestment and cross-border data warrant consideration together because each can directly affect a multinational company’s next round of capital and business allocation in China.

Some measures can already be used under existing rules, such as the tax incentives for profit reinvestment and the cross-border data facilitation measures introduced in 2024. Others still require implementing rules, such as the revised rules on foreign M&A and the participation of foreign PE firms in securities offerings by listed companies in unrelated industries. Enterprises should always distinguish between rules currently in force and policy directions when assessing the benefits.

For overseas investors, the more relevant question is not simply whether to increase investment in China, but which investment structure, capital arrangement, data pathway and functional footprint best fits the next phase of their China business under the existing business and regulatory conditions.