Why Invest in China

Why choose China for your business?

China has accumulated advantages to back up its outstanding position in the global market and maintain investor confidence, including a huge market growth potential, a skilled labor pool, unparalleled infrastructure, and investment in its capabilities as a manufacturing base for industries of the future.

Contributing Advisor

Kyle Freeman

Partner

In this guide, we discuss why China is proving to be a hotbed for companies looking to leverage market advantages such as:

• World’s largest domestic market;
• Leading global manufacturing capacity;
• Multiple special economic zones and business incentives;
• Innovation and R&D competitiveness;
• Developed infrastructure and supply chain;
• Network of Free trade and tax agreements; and,
• Market reform and improving business environment;

Tremendous domestic market

China continues to rank among the world’s most attractive consumer markets, supported by its vast population, expanding incomes, and long-term trends toward urbanization and consumer-led growth. With a population of approximately 1.41 billion (second largest globally) and GDP reaching about US$18.7 trillion in 2024, China remains the world’s second-largest economy and a major driver of global growth, with real GDP expanding by 5.0 percent in 2024. Macroeconomic conditions remain stable, with consumer price inflation at just 0.2 percent and an urban unemployment rate of around 5.1 percent, supporting household purchasing power.

Consumption fundamentals are reinforced by a massive and increasingly affluent middle-income population, now exceeding 400 million people, representing a consumer base larger than the entire U.S. population. Rising purchasing power continues to support demand, with per capita disposable income reaching approximately US$5,740 in 2024, up 5.3 percent year on year. Urbanization further strengthens consumption potential, as 67 percent of the population now lives in urban areas, a figure projected to reach 70 percent by 2030, concentrating consumers in metropolitan regions that support modern retail formats, services, and digital platforms.

Beyond its scale, China’s consumer market is highly dynamic and digitally driven. The country leads globally in e-commerce penetration, while digital payment adoption exceeds 90 percent, enabling rapid shifts in consumption behavior and business models. Demand is increasingly shaped by trends such as premiumization, health and wellness, and sustainability, particularly among younger consumers such as Gen Z, who prioritize quality, brand authenticity, and environmental responsibility. Supported by government measures aimed at stimulating domestic demand and stabilizing employment, these structural trends position China not only as a vast consumer market, but also as a critical arena for product innovation and competitive differentiation across multiple sectors.

Global manufacturing capacity

China’s position as the world’s leading manufacturing base remains highly resilient, accounting for roughly 30 percent of global industrial output. This advantage is rooted in the most complete and deeply integrated industrial system worldwide, spanning all categories recognized by the UN. The seamless linkage from raw material inputs to parts production and final assembly delivers exceptional efficiency, scale, and cost competitiveness.

A central factor supporting this leadership is China’s extensive labor pool, characterized by a workforce that is, on average, more skilled, better trained, and better supported than that of many regional peers. This strong human capital base underpins high productivity and enables rapid adoption of advanced manufacturing techniques, including precision machining and automation-intensive production processes.

China’s logistics and infrastructure capabilities further strengthen its manufacturing edge. Reliable energy supply, increasingly complemented by renewable sources, supports firms facing tightening emissions and sustainability requirements. In parallel, world-class ports, dense expressway and high-speed rail networks, and major multimodal routes—such as the China–Europe Railway Express and the New Western Land–Sea Corridor—enhance cost efficiency, accelerate delivery times, and improve overall supply chain robustness.

In addition to traditional industries, China has become a major center for advanced manufacturing, encompassing electric vehicles, semiconductors, robotics, and renewable energy technologies. Policy frameworks such as Made in China 2025 and subsequent industrial strategies have accelerated the shift up the value chain, enabling mass production of sophisticated, high-tech goods. As a result, China remains a pivotal hub in global supply chains, offering international investors access to mature production platforms and innovation ecosystems that are challenging to replicate in other markets.

Incentives for doing business

The Chinese government offers numerous investment-related business incentives and is continually making further improvements through reforms and by further upgrading its incentives to maintain the country’s high appeal to foreign investors. Among all investment incentives, tax incentives tend to be one of the most important to foreign investors and one of the most attractive features of the business landscape.

From the investor’s perspective, tax incentives are legitimate tools for reasonable tax planning and cost savings. It is also a useful indicator of market trends and government priorities.

China has implemented a series of preferential tax policies, in turn attracting a large number of foreign capital and foreign-invested enterprises and effectively promoting the adjustment and optimization of various industrial structures.

There are multiple forms of tax incentives available to businesses and can be primarily categorized as tax incentives based on:

• Type of tax – particularly Corporate income tax (CIT), value-added tax (VAT), and individual income tax (IIT).
• Size of businesses – such as small and low-profit enterprises, small- and medium-sized enterprises and small-scale VAT taxpayers.
• Sector-wise - to guide industrial upgrade, to support the development of the sector, or to respond to the special characteristics of the sector.
• Region-based – to encourage investments in certain less attractive areas or to give comparative advantages to more economic zones.

Several other types of incentives are offered by the Chinese government in qualifying special circumstances. These are explained in our incentives guide, and summarize below:

• Tariff exemptions on imported equipment – for encouraged foreign-invested projects, the import of self-use equipment within the total amount of investment can be exempted from customs duties;
• Access to preferential land prices and looser regulation of land uses – land can be preferentially supplied for encouraged foreign-funded projects with intensive land use. The land transfer reserve price can be determined at 70 percent of the national minimum price for the transfer of industrial land, which yet shall be no less than that of the local land; and
• Other bonuses for foreign investment engaged in the encouraged sectors, such as more flexibility in hiring talents, a shorter turnaround in dealing with government administration, a lower threshold in the financing, etc.

Innovation and R&D competitiveness

China has quickly established itself as a major global center of innovation, influencing technology standards and shortening product development timelines worldwide. In 2025, the country placed 10th in the Global Innovation Index, rising from 14th in 2020 and entering the top ten for the first time.

This momentum is supported by sustained investment in research and development. R&D expenditure reached 2.68 percent of GDP in 2024, positioning China as the second-largest R&D spender globally in absolute terms. The innovation ecosystem is reinforced by a large talent pipeline, with more than 5 million STEM graduates each year and over 7 million full-time R&D professionals—the largest such workforce in the world. These capabilities support leadership in areas such as artificial intelligence, biotechnology, advanced manufacturing, and green technologies.

China’s innovation strength extends beyond scale to include speed and system-level integration. Domestic companies are highly effective at rapid product iteration and digital deployment, frequently reducing design-to-market cycles from months to just weeks. Close linkages between research institutions and industry further accelerate the transition from scientific discovery to mass production, enabling faster commercialization of new technologies.

Infrastructure and supply chain

China's infrastructure investment is a key driver of economic growth. The country boasts the largest network of high-speed rail and expressways in terms of mileage, which allows products to be transported efficiently. The advantages of a sophisticated manufacturing and logistics infrastructure ensure China will not be replaced in the global supply chain easily.

The development of new infrastructure is also a core component of the 14th Five-Year Plan (FYP), the country’s primary economic roadmap for the period between 2021 and 2025. The plan urges China to accelerate the building of new infrastructure in the years leading up to 2025, covering a wide range of industries, from gigabit fiber optics to space-based infrastructure, and expanding smart and green energy transport.

There are extensive plans to expand railway networks, including intercity rail and high-speed rail, highways, and passenger airports. By 2025 the country aims to:

• Expand the railway operating mileage by 19,000 kilometers, of which 12,000 kilometers will be high-speed rail; 
• Expand the mileage of public roads by 302,000 kilometers, of which 29,000 kilometers will be expressways;
• Building at least 29 new passenger airports; and, 
• Expanding urban transit rail operating mileage by 3,400 kilometers. 

Economic Development Zones and Super City Clusters

EDZs provide a broad range of FDI incentives, which vary depending on the specific EDZ. Businesses operating in EDZs can expect, among other incentives, a higher level of autonomy over their operations, a variety of tax exemptions, land and building subsidies, and preferential employment policies.

China has created a range of EDZs to attract foreign direct investment (FDI) and boost domestic growth. Economic development zones (EDZs) are areas with preferential business policies that differ from those governing the country as a whole.

There are over 2,000 EDZs, each with unique investment incentives and accreditation at different levels of government. Even within zones of the same type, the level of infrastructure, amount of autonomy, and breadth of incentives vary widely, creating an extremely diverse investment environment. Further, EDZs can have accreditation at the national, provincial, municipal, and district levels. Accreditation at a higher level generally means larger tax exemptions and better infrastructure.

We outline the classification, purpose and major policies in EDZs below:

Super city clusters

The scale of China’s urbanization over the past four decades is a staggering feat in human history. City clusters, as the main form of China’s new urbanization, are important pillars to support economic growth, promote coordinated development among regions, and enhance international competitiveness.

Among the 19 super city clusters, which cover most of the provinces throughout the country, four of these clusters - the Yangtze River Delta, the Pearl River Delta (or the Guangdong-Hong Kong-Macao Greater Bay Area), the Beijing-Tianjin-Hebei (or Jing-Jin-Ji), and the Chengdu- Chongqing Economic Circle - are among the most important, and areas which China is working particularly hard to optimize and improve.

The Yangtze River Delta alone accounted for 24.1 percent of China’s total GDP and 48.9 percent of China’s foreign direct investment in 2021, while the Guangdong-Hong Kong-Macao Greater Bay Area accounted for 11 percent of China’s total GDP and 15.7 percent of China’s FDI the same year. Businesses that have operations in China or that are planning to expand to this enormous market are advised to seriously consider and fully understand the potential of these city clusters.

Trade and investment agreement framework

China has been extremely active in putting into place a variety of trade agreements. This includes bilateral investment treaties (BITs), free trade agreements (FTAs), and double taxation agreements (DTAs), among others. These have had a significant impact on the Asian geographical region and proved highly influential in encouraging the direction of trade flows and the development of supply chains.

Free trade and bilateral trade agreements

China has signed off on 23 FTAs, which involve a total of 30 countries and regional blocs (including ASEAN, comprising 10 nations), offering direct trade advantages with these countries and regions.

In addition, 10 FTAs are under negotiation, with 7 more under consideration, signaling continued expansion of China’s trade footprint. On the investment side, China maintains 110 BITs in force, with another 17 signed but pending implementation, offering foreign investors greater protection and predictability. 

Double taxation avoidance agreements

Double Tax Avoidance Agreements treaties effectively eliminate double taxation by identifying exemptions or reducing the amount of taxes payable in China.

DTAs not only provide certainty to investors regarding their potential tax liabilities but also act as a tool to create tax-efficient international investments.

So far, China has signed DTAs with 114 countries or regions.

For European companies, China serves as a strategic gateway to the Regional Comprehensive Economic Partnership (RCEP), the world’s largest trade bloc. Leveraging RCEP through China allows firms to capitalize on tariff advantages, benefit from China’s advanced industrial base and comprehensive supply chains and seamlessly connect with other member states. This positioning enables businesses to expand across Asia more efficiently and integrate into one of the most dynamic regional economies globally.

Market reforms 

China is continuing to push forward market-opening reforms designed to attract high-quality foreign investment and enhance the overall business climate. Key measures include easing market entry requirements, simplifying regulatory procedures, and reaffirming a long-term commitment to openness.

A central element of this agenda is the updated Negative List for Foreign Investment Access, which identifies sectors subject to special administrative controls. The 2025 edition represented a significant step by eliminating all foreign investment restrictions in manufacturing and committing to further opening in major service sectors such as telecommunications, education, and healthcare.

Consistent with these goals, China launched several pilot initiatives to broaden foreign participation in fast-growing industries. In September 2024, foreign investors were allowed to enter cell and gene therapy fields in four free trade zones, and wholly foreign-owned hospitals were approved in nine large cities. In October 2024, an additional pilot program permitted full foreign ownership of data centers and value-added telecommunications services in Beijing, Shanghai, Hainan, and Shenzhen.

Together, these policies offer substantial opportunities for overseas investors, especially in biotechnology, healthcare, and digital infrastructure—areas central to China’s innovation-led development strategy. By lowering entry thresholds and promoting competition, China strengthens its efforts to attract global capital and speed up technological progress in priority sectors.

Ease of doing business

In recent years, China’s business environment has been increasingly reflected in its performance in global competitiveness assessments. According to the IMD World Competitiveness Yearbook 2025, China ranks 16th overall among 69 economies, placing it in the upper quartile globally and demonstrating steady resilience across key pillars of competitiveness.

China performs relatively strongly in areas related to economic performance, government efficiency, business efficiency, and infrastructure, with balanced rankings across domestic economy, international trade and investment, employment, productivity, and technological infrastructure. These results indicate that structural reforms and sustained investment in physical and digital infrastructure continue to support business operations and industrial upgrading, while labor market scale and supply-chain depth remain important competitive advantages.

Policy reform remains a central feature of China’s competitiveness strategy. Key priorities identified for 2025 include deepening reform and opening-up, stimulating innovation to promote industrial upgrading, strengthening consumption as a growth driver, improving social welfare through policy support, and stabilizing international economic cooperation by addressing trade frictions. These priorities underscore the government’s continued focus on institutional improvements and market-oriented reforms to enhance the operating environment for both domestic and foreign enterprises.

Innovation and emerging industries

Once known as an economy rife with copycats and counterfeits, China-based businesses are advancing to the leading edge of innovation and experimental business models.

This spending has contributed to the growth of dynamic and innovative business models in areas like e-commerce, fintech, and artificial intelligence that are competitive with – or even lead – advanced economies like the US. China's "future industries" focus on emerging technologies still in the early stages of development, including quantum computing and 6G networks. Together, these strategies highlight China’s broader goal of driving economic growth through technological innovation and leadership in frontier industries.

One unique advantage of data-fueled innovation is the size of its internet-using population - with close to a billion internet users, which is more than the US and EU combined. About 800 million people use mobile payments on a daily basis – over eight times more than the US – leading to a world-leading fintech industry.

Beyond opening an enormous market, investing in China positions international companies to gain experience with innovative products that can make them more innovative and competitive in their home countries.

China’s thriving services industry

As China navigates its transition from manufacturing to services and consumption, foreign investors who are agile and can adapt to satisfy shifting trends will be best placed to capitalize on the country’s new economic landscape.

China’s services sector is the main driver of economic growth and the basis for the next stage in its development. With labor and land costs growing and its workforce becoming increasingly well-educated, China is transitioning to more sustainable post-industrial services and a consumption-driven economy.

The government is also increasingly focused on improving the business landscape for the services industry.  The State Council and China’s Cabinet approved comprehensive pilot programs on opening the service sector in Tianjin, Shanghai, Chongqing municipalities, and Hainan province. This document expands the pilot program on China’s service sector opening – six years since Beijing became the first and only pilot city in China to implement service sector opening-up trials in 2015. The affected industries include areas that were previously off-limits, such as education, telecommunications, construction, performing arts, and more.

Why do foreign companies relocate to China?

To size up China, or any country, as a potential destination for relocation, it is vital that foreign investors diligently research their options across many factors that are relevant to their situation. Such factors may include infrastructure, locations, talent availability, access to raw materials, incentives, supply chain partners and logistics, and others.

Here are some top reasons why companies choose to relocate to China:

• All of the stated Top Reasons to Invest in China;
• Preferential policies, especially tax incentives, for investment in certain sectors and areas;
• A resilient supply chain and export capacity: China boasts the largest network of high-speed rail and expressways in terms of mileage, which allows products to be transported efficiently;
• Access to a large domestic market as well as proximity to the growing south and south-east- Asian countries to implement the China+1 strategy; and
• Numerous EDZs, FTZs and super city clusters, workforce and labor availability, lower labor costs and a relatively open environment for foreign direct investments.

Summary: Top 10 Reasons to Invest in China