China Market Intelligence

China entered 2026 with clear goals for its digital economy: accelerate capability while tightening oversight. Three recent regulatory updates illustrate this shift. First, the revised Cybersecurity Law (CSL), which took effect on January 1, consolidates cybersecurity and AI under one governance framework, expanding the law’s scope and strengthening penalties.

President Donald Trump is attempting to reshape the global economic order by moving away from traditional free trade agreements toward bilateral Agreements on Reciprocal Trade (ARTs). These agreements, initiated after the imposition of sweeping “Liberation Day” tariffs last year, ostensibly aim to open new markets for US exports, reduce foreign tariffs and non-tariff trade barriers, and spur alignment with US economic and national security measures.

The Department of Defense’s 1260H list — often referred to as the Chinese Military Companies (CMC) list — is back in the spotlight after an updated version was abruptly removed from the Federal Register just hours after being published late last week. While it’s unclear when a list will be republished and who will be on it, companies should be aware of the list’s growing importance.

China has taken a significant step in modernizing and standardizing its tax policy. On January 1, the Value-Added Tax (VAT) Law came into effect after being passed by the National People’s Congress in December 2024. VAT, a consumption tax based on the value added to goods and services at each stage of production and distribution, is China’s largest single source of tax revenue and accounted for 39% of total national revenue in 2025.

Late last year, China’s National People’s Congress passed the most significant revisions to the Foreign Trade Law in two decades. While nothing directly signals more frequent use of these tools against US companies in the short term, China will be equipped to respond decisively if trade negotiations are derailed.

According to official government data, China’s economy hit its target of 5% growth in 2025, but only just. Unofficial estimates paint a bleaker picture, with the Rhodium Group concluding that China’s real GDP grew by just 2.5% to 3% in 2025, largely due to persistent deflation and a sharp decline in investment.

In December, China officially opened the Hainan Free Trade Port (FTP). The Belgium-sized Hainan Island is now a separate customs territory, allowing goods to enter the island tariff-free and exempt from value-added and consumption taxes across 74% of tariff categories. Items subsequently shipped to mainland China may also qualify for tariff-free treatment if their local processing in Hainan accounts for at least 30% value-added.

For multinational companies operating stable supply chains, general licenses were initially viewed as a potential step toward greater predictability. Recent practice, however, suggests that while general licenses are now more commonly issued, they are also being implemented in a far more constrained and actively managed manner than their stated regulatory design might imply.

Congressional engagement on US-China trade issues is set to intensify in 2026 as the midterm elections put the economy, tariffs, and trade policy under the microscope. With control of Congress up for grabs, Democrats and Republicans are especially attuned to the downstream impacts of trade policy, including on consumer prices. Those pressures, paired with bipartisan concern over China’s rapid technological advancement and monopoly on critical minerals, are likely to drive Congress to take a more active role in shaping trade and industrial policy.

Beijing has issued unusually granular implementation guidelines for its AI+ manufacturing program. The plan, rolled out on January 9, defines deliverables, timelines, and an enforcement architecture that will mobilize provinces, state-owned enterprises, and industrial parks to implement AI solutions in China’s manufacturing sector.