China’s economic strategy has evolved significantly in recent years, shaped by the rollout of the 15th Five-Year Plan (2026-2030) and a sustained focus on domestic market resilience.
The prevailing model guiding foreign business activity is the “In China for China” (ICFC) approach, in which international companies establish fully localised operations, from manufacturing and research and development to sales and marketing, to serve the Chinese domestic market directly. This model helps companies reduce exposure to global supply chain disruptions, adapt products to local preferences and compete more effectively with domestic brands.
A shift towards local manufacturing and policy evolution
At the core of China’s economic framework is the Dual Circulation Strategy, a blueprint for greater self-reliance built on two interconnected dimensions. The first focuses on strengthening China’s domestic market through more accessible e-commerce, the development of innovation hubs such as the Greater Bay Area (GBA) and the ongoing upgrade of the “Made in China” initiative towards more technologically advanced domestic production. The second encompasses China’s cross-border economy, integrated through trade agreements such as the Regional Comprehensive Economic Partnership (RCEP), continued economic reforms and the gradual internationalisation of the renminbi (RMB).
For a growing number of sectors, particularly high-growth areas such as healthcare and medical devices, localising production has moved from a strategic option to a competitive necessity. China remains open to foreign investment, and companies whose activities fall within the “encouraged industries” listed in the 2025 Encouraged Catalogue for Foreign Investment may qualify for significant incentives, including tariff exemptions on imported equipment, reduced corporate income tax (CIT) rates and preferential land access. These incentives are calibrated to attract businesses that align with China’s broader development objectives, with a clear emphasis on high-tech manufacturing, green energy and modern services.
Taking a regional approach: beyond first-tier cities
While first-tier cities are often the initial consideration for foreign-invested enterprises (FIEs), many businesses are expanding successfully into regions that offer distinct operational and financial advantages. Location selection depends on a company’s specific manufacturing profile, supply chain requirements and longer-term growth objectives.
Special economic zones (SEZs) have been a longstanding choice for foreign companies in China. Locations such as Shenzhen, Zhuhai and Shantou offer tax advantages, streamlined administration and well-developed infrastructure. Manufacturing companies frequently leverage these zones to improve flexibility and efficiency in both inbound and outbound logistics, making them a practical starting point for new ventures.
Free trade zones (FTZs) are particularly attractive for companies focused on international trade and logistics, offering customs duty and VAT exemptions alongside simplified customs procedures and greater flexibility in cross-border transactions. FTZs in the Greater Bay Area, Shanghai Lingang and the Hainan Free Trade Port are among the most sought-after locations, given their strategic positioning and integration into high-performing supply chain networks. For manufacturing firms, these zones offer measurable efficiency gains across the movement of goods.
Tier-2 and tier-3 cities, including Suzhou, Chengdu and Hefei, can offer lower rental costs, specialised industrial clusters well-suited to specific manufacturing profiles and often generous local government subsidies. Each city presents a different combination of labour availability, infrastructure quality and regulatory environment.
The Hainan Free Trade Port warrants particular attention for trading and manufacturing companies. As it progresses towards “Full-Island Customs Closure” the entire island will operate as a distinct customs-supervised area. Goods moving between Hainan and other countries will be subject to simplified, more liberal trade rules, while goods moving between Hainan and mainland China will be treated more like imports. This structure positions Hainan as an attractive hub for international trade, manufacturing and investment. Qualified talent based there benefit from a maximum 15% individual income tax (IIT) rate, encouraged industries are eligible for a 15% CIT rate and zero-tariff conditions apply to imported self-use production equipment.
A pathway to localisation
Establishing a manufacturing base in China or transforming existing operations involves considerable complexity. The success of a market entry strategy, particularly for manufacturing companies, depends heavily on the thoroughness of three preparation phases: market analysis, location assessment and business planning.
Finding the optimal location
Establishing a manufacturing base in China or transforming existing operations involves considerable complexity. Common concerns among companies approaching this process include limited local market knowledge, cultural differences and the challenge of navigating an evolving legal and regulatory environment.
Experience indicates that the success of a market entry strategy, particularly for manufacturing companies, depends heavily on the thoroughness of three preparation phases.
Market analysis
An in-depth assessment of market conditions and the broader business environment helps bridge the knowledge gap between headquarters expectations and market reality.
Location assessment
The relative importance of each factor varies by manufacturing type, but key considerations include the commercial environment and transportation links, rental cost advantages and local incentives, supply chain proximity, site feasibility and labour availability and cost.
Business plan and investment calculation
Foreign investors frequently underestimate the costs and complexity of establishing a new manufacturing site. A detailed investment plan helps avoid unexpected cashflow shortfalls and supports preparation for future supply chain shifts.
Hiring the right talent
The availability and cost of talent are central to the performance of any production facility. China has introduced a range of policies to attract international expertise while leveraging its growing domestic talent base.
Visa liberalisation has simplified the process of bringing in senior technical staff. The expansion of 144-hour visa-free transit and the introduction of the K Visa (October 2025) for science, technology, engineering and mathematics (STEM) professionals have made it considerably more straightforward for skilled individuals and executives to work in and travel to China.
At the same time, companies have access to a substantial and growing pool of locally based talent. With nearly 500,000 overseas-educated Chinese graduates returning annually, businesses can draw on professionals who combine international experience with an understanding of the local market, a profile that is particularly valuable in operational and leadership roles.
As candidates become more selective, companies benefit from taking a longer-term view when securing executive talent. Remote assessment tools and locally embedded partners can help address traditional hiring challenges and reduce time-to-hire for critical positions.
Staying compliant
Keeping pace with rapidly evolving compliance regulations is a persistent challenge, and one that is particularly acute for manufacturing entities. Common issues reported by clients include limited visibility and control over bookkeeping practices, suspicious business transactions with insufficient supporting documentation, a low Corporate Social Credit System (CSCS) score in key business areas, internal complaints or whistleblower cases and sustained operating losses alongside high operating costs.
