China Market Intelligence

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.

China will unveil its 15th five-year plan covering 2026-2030 in March. The economic blueprint also serves as the final rally for the country to meet its pledge to cap carbon emissions by 2030.

With several high-stakes engagements slated for next year — an April visit to Beijing by Trump, APEC in Shenzhen in November, the G20 in Miami in December, and a potential reciprocal state visit by Xi — neither side will seek to intentionally rock the boat. But the absence of a formal agreement, combined with pressure from parts of the US government that are concerned China policy is heading in the wrong direction, means the truce is fragile.

This week, China’s National Bureau of Statistics (NBS) released economic performance data for November, showing factory output and retail sales growth slowing to their weakest levels in over a year. Stubbornly low demand, a slowdown in production, and deflationary pressure coincided with a record trade surplus, which was achieved largely by frontloading exports and expanding shipments to ASEAN and EU partners amid US tariffs.