China’s Regulations on Fair Competition Review took effect on 1 August 2024, introducing stronger controls over government policies that may restrict market competition. The regime is particularly relevant to local investment promotion, where tax incentives, fiscal subsidies and other preferential arrangements have traditionally played an important role in attracting businesses.
For foreign investors considering establishing or expanding operations in China, the change does not mean that local government incentives have disappeared. It does, however, mean that businesses should examine much more carefully whether an incentive has a proper legal basis, whether it can be implemented as promised and what happens if the policy changes after the investment has been made.
1. Why the New Rules Matter to Investors
The Regulations require government authorities and other authorised bodies to conduct a fair competition review when formulating policy measures affecting business activities. The review applies to areas including market access, industrial development, investment promotion, government procurement and tendering. The 2025 implementation measures further extended the detailed review framework to specific policy measures and administrative agreements involving businesses.
Two areas are particularly relevant to investment projects.
First, local policy measures must not improperly restrict the free movement of goods, production factors or businesses between regions. This includes measures that obstruct a business from relocating out of a locality or discriminate against businesses from other regions.
Second, without a legal or administrative regulatory basis or State Council approval, policy measures generally must not grant specific businesses preferential tax treatment, selective or differentiated fiscal subsidies, or preferential treatment concerning access to production factors, administrative charges, government funds or social insurance contributions.
These rules directly affect the traditional investment promotion model in which a company negotiates a package of locally provided incentives in exchange for establishing operations, relocating registration, generating local tax revenue or meeting investment targets.
2. Not Every Government Incentive Is Prohibited
Foreign investors should not interpret the fair competition review regime as a complete prohibition on government support.
The detailed implementation measures distinguish between preferential treatment granted to a specifically identified business and support based on fair, objective, transparent and non-exclusive eligibility criteria. They also clarify that, without the required legal basis or approval, local authorities should not make fiscal rewards or subsidies conditional on an outside business relocating its registration, paying taxes locally or being included in local statistical reporting.
Nationally authorised tax incentives, regional preferential regimes established under higher-level legislation and properly structured industry support programmes may therefore continue to operate.
For investors, the key question is no longer simply “What incentive has the local government offered?”
The more important questions are:
- What is the legal basis for the incentive?
- Is it contained in a generally applicable policy or negotiated specifically for one investor?
- Which government authority approved it?
- Does it depend on relocation, local tax contribution or other conditions that may raise fair competition concerns?
- What happens if the policy is later amended or withdrawn?
3. Existing Investment Agreements May Need to Be Reassessed
Many investment projects in China are supported by agreements between businesses and local governments. These documents may be called investment agreements, cooperation agreements, investment promotion agreements or similar names.
Their terms vary significantly.
Some agreements contain detailed provisions addressing changes in laws and government policies. Others may simply promise tax-linked rewards, subsidies, land or cost-related benefits without clearly allocating the risk if those benefits can no longer lawfully be provided.
Some older agreements may also contain obligations restricting a business from relocating its operations or registration elsewhere. The Regulations expressly address policy measures that obstruct businesses from relocating or restrict the free movement of goods and production factors.
Foreign investors that already benefit from locally negotiated incentive packages should therefore review both the relevant government policy and the underlying investment agreement.
The review should distinguish between benefits that remain supported by law and those that may depend on discretionary or business-specific arrangements.
4. Investment Location Decisions Are Likely to Change
The regulatory shift may gradually reduce the importance of highly customised tax and subsidy packages in competition among Chinese cities.
As a result, investors may increasingly need to evaluate locations based on broader commercial factors, including:
- regulatory transparency;
- administrative efficiency;
- infrastructure and logistics;
- availability of qualified employees;
- access to customers and suppliers;
- industrial clusters;
- dispute resolution;
- intellectual property protection; and
- the predictability of local government decision-making.
For foreign-invested companies in particular, a transparent and predictable business environment can be more valuable over the life of a project than a large short-term incentive whose legal basis or future availability is uncertain.
Local governments are also likely to rely more heavily on market-oriented investment tools, industrial funds, professional services and ecosystem development rather than individually negotiated operating-cost incentives. The original article identified government-guided investment funds as one emerging direction in local investment promotion.
5. What Foreign Investors Should Check Before Relying on Incentives
Before making an investment decision based materially on local government support, a foreign investor should conduct a legal review of the proposed incentive package.
In particular, the investor should identify which benefits are created by national or provincial legislation, which arise under generally applicable local policies, and which have been negotiated specifically for the project.
The investment agreement should also address what happens if a promised incentive becomes unavailable because of a change in law, regulatory interpretation or government policy.
Companies already operating in China should similarly review significant incentives they currently receive and determine whether any arrangement could be affected by the fair competition review regime.
This is particularly important where the original business case depended heavily on tax rebates, fiscal rewards or other operating-cost advantages.
6. A More Sustainable Approach to Investment in China
The fair competition review regime represents a broader shift toward reducing local protectionism and promoting a more unified national market. The 2025 implementation measures provide detailed standards covering market access and exit, movement of goods and production factors, operating costs and business conduct.
For foreign investors, this development creates both risks and opportunities.
Certain locally negotiated benefits may require closer scrutiny, but a more transparent and rules-based investment environment may also make it easier to compare locations and assess long-term investment conditions.
The practical lesson is straightforward: local incentives should be treated as a legal and commercial variable, not as a guaranteed component of an investment return.
Before committing capital, investors should review the legal basis of the incentives, the relevant government policies, the investment agreement and the consequences of future policy changes.
As of August 2026, the State Administration for Market Regulation is also in the process of revising the detailed implementation measures. Businesses considering significant investment projects should therefore confirm the rules in force at the time of the transaction rather than relying solely on earlier local policies or investment agreements.