DCC China Regulatory & Policy Update, 2, February 2026

Contents

2. Competition and Market Regulation

2.1 Restrictions on Supplier Squeezing

2.2 Curbing Excess Price Competition

3. Foreign Investment Laws

3.1 New Technology Contract Registration Rules

3.2 New 2025 Guidelines on Choosing and Registering Company Names

4. Tax

4.1 China's New VAT Law: Key Threshold Rules and Implications for Foreign Businesses

4.2 China Steps Up Enforcement on Overseas Income Taxation

5. Digital Space & Data Laws

5.1 Clear & Bright Generative AI Prior to Chinese New Year

5.2 Rules Related to Facial Recognition Software

6. Supply Chain and Export Control Policy

7. Financial Policy Development of a Sci-Tech Insurance System

1. Pre-Two Sessions Policy Overview

Each year in early March, China convenes the “Two Sessions,” the annual meetings of the National People’s Congress (NPC), China’s legislature, and the Chinese People’s Political Consultative Conference (CPPCC), the country’s top political advisory body. Held annually since 1978, the Two Sessions serve as the principal platform for announcing macroeconomic priorities, legislative initiatives, and broader socio-economic policy directions.

With the 2026 sessions now underway in Beijing, the meetings are providing the first formal signals of the government’s policy priorities for the year ahead. Early discussions and policy messaging have continued to emphasize themes that were already visible in preparatory policymaking earlier this year: strengthening domestic demand, supporting technological innovation, guarding against external shocks, debt and risk control and addressing structural pressures in the economy.

These discussions are taking place against a backdrop of mixed economic signals. On the one hand, China has maintained strong export performance and has engaged in an active round of diplomatic and economic exchanges with major trading partners in recent months, including visits by leaders from several G7 and other advanced economies. On the other hand, domestic challenges, including high youth unemployment, a prolonged property sector adjustment, weak consumption, industrial overcapacity, and demographic pressures, continue to shape the policy debate.

This tension has led some analysts to describe China’s economy as operating at “two speeds”: a comparatively strong export-oriented manufacturing sector alongside a slower-recovering domestic economy (sometimes described in Chinese policy discussions using the term neijuan (内卷), or “involution,” referring to increasingly intense competition under limited growth conditions).

Policy messaging around the Two Sessions has therefore continued to stress the need to rebalance growth toward domestic demand while strengthening technological self-reliance and productivity growth. Recent official statements have also highlighted the importance of improving “new quality productive forces” ( 新质生产力), CCP speak for innovation-driven growth based on advanced manufacturing, digital technologies, and human capital development.

More broadly, policymakers appear increasingly focused on the limits of traditional investment-driven growth. After decades of rapid expansion in infrastructure, housing, and industrial capacity, many analysts believe that future growth will depend more heavily on productivity gains, technological advancement, and workforce skills. Consistent with this view, recent policy proposals linked to the upcoming 15th Five-Year Plan (2026–2030) emphasize increased investment in human capital, innovation capacity, and emerging technologies.

2. Competition and Market Regulation

The Chinese government increasingly sees the need to rein in unhealthy and excessive competitive practices in the Chinese EV industry.

2.1 Restrictions on Supplier Squeezing

In 2025–2026, China’s authorities have escalated efforts to discipline payment practices within the electric vehicle (EV) sector. Not through abstract calls for compliance, but via specific measures and industry commitments designed to curb prolonged payment cycles that have burdened upstream suppliers.

Although many of the visible industry announcements occurred in 2025, regulatory momentum continues into 2026 and reflects a broader shift toward more enforceable industry standards.

Concrete developments include:

Major automakers and industry bodies committed to a 60-day supplier payment timeline to alleviate cash flow pressure on smaller parts manufacturers. This initiative was supported by China’s Ministry of Industry and Information Technology (‘MIIT’), which publicly backed industry efforts to standardise and accelerate payments.

To make compliance more actionable, MIIT has even opened an online platform to receive complaints on supplier payment practices, signalling that adherence to fair payment timelines could be subject to dispute resolution and greater enforcement scrutiny.

Collectively, these moves demonstrate a pragmatic shift away from permissive supplier financing arrangements and toward more balanced commercial relationships in China’s auto supply ecosystem.

Crucially, Chinese policy makers appear to eschew broad, undefined pronouncements in favour of targeted, enforceable standards, especially around payment cycles and supplier relations, and this has impacted all leading EV producers in China.

Regulatory Pattern — Large Players First

To understand the tone and purpose of this enforcement, it’s useful to recognize a recurring pattern in China’s regulatory approach: Beijing is not afraid to pick the largest, most visible companies in a sector, impose rules or require corrective action, and thereby send a message across the industry, a method often referred to by Chinese

as “kill the chicken to warn the monkey” (杀鸡儆猴).

In the EV and broader tech economy, this pattern has appeared in recent years through:

•          High-profile regulatory action and enforcement against major platform firms aimed at realigning market behaviour (e.g., targeted antitrust and data security supervision around internet platforms).

•          Cases where leading firms were required to adjust or clarify practices before the broader industry is expected to follow — for example, commitments made by dominant Chinese EV brands to curtail extended payment timelines and strengthen supplier relations.

Rather than acting only through warnings, current policy indicates that regulators are institutionalising oversight mechanisms, such as formal dispute channels and binding baseline terms, to make supplier discipline a systemic and lasting part of industry governance.

Why This Matters:

Payment discipline in automotive supply chains is no longer a reputational or voluntary best-practice issue. It is becoming an institutionalised regulatory priority. By endorsing a 60-day standard and opening formal complaint channels, authorities are signalling that supplier liquidity and supply-chain stability are matters of industrial policy, not merely commercial negotiation (in practice almost always “take it or leave it” offers).

For foreign suppliers operating in China, particularly SMEs embedded in domestic EV supply chains, stricter enforcement may improve cash flow predictability and reduce financing pressures.

At the same time, multinational OEMs and large manufacturers should reassess their supplier payment practices, financing instruments, and digital receivables arrangements to ensure alignment with evolving compliance expectations. The fact that leading players are being pushed to adjust their practices suggests that size and visibility increase regulatory exposure.

What to Watch:

•          Whether the current 60-day industry commitment evolves into binding standards beyond automotive

•          The practical use and enforcement activity stemming from MIIT’s supplier complaint platform

•          Further high-profile compliance adjustments by dominant OEMs, consistent with the pattern of targeting leading firms to set industry norms

2.2 Curbing Excess Price Competition

New Automotive Industry Price Conduct Compliance Guidelines

The State Administration for Market Regulation (‘SAMR’) issued on 11 February 2026 the "Automotive Industry Price Conduct Compliance Guidelines" (‘Pricing Guidelines’) to curb automotive specific involution (‘neijuan’ 内卷) with excessively low prices and aimed at standardizing pricing behaviour across the automotive supply chain - from manufacturers to dealers to online platforms. Chinese original text here.

Pricing Guidelines draw on, and therefore complement, existing price law, anti-fraud rules, and anti-dumping regulations, apply to all vehicle production and new car sales activities within mainland China, and are structured around three main industry actors: vehicle and parts manufacturers, sales enterprises (dealers, agents, and traders), and automotive trading platforms. Each actor faces distinct obligations.

Manufacturers need to effectively implement whole-chain, cost-based, and market-oriented price management, from factory gate pricing to rebate policies and financial services. Manufacturers must set clear, contractually agreed rebate policies with dealers.

The Pricing Guidelines flag significant legal exposure for price collusion between manufacturers, including fixing prices, coordinating price change margins, or adopting unified pricing formulas. The Pricing Guidelines prohibit below-cost selling designed to eliminate competitors and “predatory pricing”, including hidden discounts, subsidies, under-invoicing and barter arrangements structured to obscure the true transaction price. With regards to "pay-to-unlock" features manufacturers must clearly disclose any free trial periods, subsequent charges, and differentiated paid features at the point of sale, with reminders to consumers before free periods expire.

Dealers and sales enterprises must display prices prominently, including vehicle name, price, model, manufacturer, and key specifications, whether selling in physical showrooms or online. The stated sales price is the dealer's own price, not the manufacturer's suggested retail price. Promotions must be clearly disclosed, with reference prices accurately stated. Dealers are also warned against deceptive practices such as bait-and-switch low-price advertising, etc.

For online platforms, the Pricing Guidelines require platform operators to respect the autonomous pricing rights of merchants on their platforms, prohibiting the use of algorithms, service agreements, or technical means to impose unreasonable pricing restrictions or force participation in promotional campaigns.

Why This Matters:

Foreign automakers, joint ventures, and international parts suppliers with operations in China should pay close attention to several dimensions of the Pricing Guidelines:

•          Rules on manufacturer-dealer pricing relationships: the explicit protection of dealer autonomous pricing rights, combined with the prohibition on manufacturers using rebate structures or contractual terms to effectively control retail prices, echoes broader concerns about resale price maintenance that have led to substantial antitrust fines in China's auto sector recently;

•          Predatory pricing provisions: in supply chain disruption scenarios, the Pricing Guidelines specifically warn parts manufacturers who significantly raise prices without justification when costs have not materially changed. The inverse risk also applies: aggressive below-cost pricing strategies used to gain market share can constitute unlawful predatory pricing;

•          Foreign brands investing in connected and software-defined vehicles face a direct compliance issue in the pay-to-unlock provisions. As more features migrate to subscription or post-sale activation models, brands need to ensue that disclosure practices at the point of sale meet the Pricing Guidelines' requirements; and 

•          Foreign companies selling through e-commerce or third-party platforms in China should note that platform operators now carry explicit responsibility for monitoring and correcting pricing violations by merchants.

What to Watch:

The pay-to-unlock provisions are likely to generate significant enforcement activity. Regulators have already shown interest in this space.

The anti-collusion provisions targeting manufacturer-to-manufacturer price coordination deserve careful monitoring, particularly in the NEV segment where pricing competition has been aggressive and where the boundaries between legitimate market signalling and unlawful coordination can be tough to draw.

Platform accountability is a developing front. As automotive sales increasingly migrate online and through aggregator platforms, the Pricing Guidelines' requirement that platforms actively police merchant pricing behaviour points toward a more interventionist attitude toward automotive e-commerce.

3. Foreign Investment Laws

3.1 New Technology Contract Registration Rules

China's Ministry of Industry and Information Technology (‘MIIT’) issued on 9 February 2026 the "Measures for the Registration and Management of Technology Contracts" (‘New Measures’), taking effect on 1 March 2026. The rules overhaul how technology contracts are recognised for policy support purposes, and are not to be confused with Ministry of Commerce’s (‘MOFCOM’) separate import/export tech contract regime.

The New Measures create a unified framework for recognising and registering contracts covering technology development, transfer, licensing, consulting, and services. While registration remains technically voluntary, it is now a required gateway to access incentives:

•          VAT exemptions on technology transfers;

•          Corporate income tax (‘CIT’) reductions: 100% reduction on all related income up until RMB 5million, income beyond 5 million with a possible 50% reduction);

•          100% pre-tax deduction, plus an additional 100% “super deduction”, of certain technological innovational R&D expenses which do not form intangible assets (i.e. labour costs, direct material costs, equipment & depreciation, trial production and other incidental costs); and

•          Local government incentives and rewards, i.e. bonuses and cash rewards, tied to recognised technology transaction value.

Registration authorities must determine whether a contract qualifies as a "technology contract," classify it correctly, and quantify its transaction value before issuing a registration certificate. High-value contracts (≥ RMB 5 million) face an enhanced review process, with standard cases processed within 10 working days and complex or large transactions within 30.

How are the New Measures separate from the MOFCOM’s technology import/export regulations? MIIT's system focuses on domestic market development and fiscal incentives, while the MOFCOM regime constitute trade-control tools. For cross-border technology transactions, companies must navigate both: first secure MOFCOM registration (and any required licenses for restricted technologies), and then use that documentation as input to MIIT's registration process to access fiscal benefits.

Why This Matters:

For foreign-invested enterprises and multinationals with cross-border technology arrangements, the New Measures raise the compliance bar considerably. A few key implications stand out:

•          Fiscal incentives at stake are substantial. The mentioned VAT and CIT reductions and the R&D super-deductions will affect the bottom line of technology-intensive operations in China - but only if related documentation is structured in a way that satisfies MIIT's recognition criteria;

•          Contract structuring matters more than ever. The explicit requirement to separate technology value from non-technology items, such as equipment or raw materials, means that how a contract is drafted directly affects what benefits can be claimed. Especially bundling of technology services with hardware supply will need to be reviewed; and

•          The dual MIIT and MOFOMC regime burden falls hardest on cross-border deals. Foreign companies licensing technology into China or engaging in technology service arrangements must now satisfy both MOFCOM's import/export controls and MIIT's domestic registration requirements. 

What to Watch:

Local implementation rules of the New Measures will relax or add to the compliance load. Cities like Shanghai have already added their own documentation requirements, and other major business hubs are likely to follow.

The enhanced review mechanism for high-value contracts (≥ RMB 5 million) will also be one to watch. How rigorously authorities apply the technology value carve-out in practice will determine the compliance burden for large-scale tech transactions.

Finally, the New Measures are part of a sustained push by Beijing to bring greater discipline and statistical visibility to China's technology market. As industrial policy tools become more tightly linked to verified transaction data, the administrative infrastructure around technology contracting is likely to grow, not shrink, in the years ahead.

3.2 New 2025 Guidelines on Choosing and Registering Company Names

The SAMR, China’s market regulatory authority, has released updated “Guidelines on Enterprise Name Declarations (2025 Edition)” (‘Name Guidelines’), link here, which provide interpretative clarifications regarding the selection and registration of company names in China.

The format for choosing a name for a Chinese company, including those established by foreign investors, has long been established through the “Regulations on the Administration of Enterprise Name Registration” and other relevant laws and regulations, and must conform with this formula (always requiring many iterations with our clients):

[Name of City/Province] + [Trade Name of investor] + [Industry branch denominator] + [Type of Company, e.g., Co., Ltd.].

Names must be in Chinese characters, unique, non-misleading, and avoid prohibited terms like "China" or government agencies.

The Name Guidelines provide clearer interpretative direction on several naming issues that have previously led to inconsistent practice, particularly in relation to branch names, group names, names for foreign-invested enterprises and.

Specific guidance in relation to 2 scenarios of name conflicts is provided by the Name Guidelines:

•          Identical Trade Names in the Same Registration Jurisdiction:

o   Identical trade names remain prohibited within the same jurisdiction where companies operate in similar industries and confusion is likely.

o   Where business scopes are clearly distinct, authorities may allow identical names following administrative review.

•          Assessment Rules for Comparing Similar Company Names to be based on:

o   Phonetic similarity

o   Visual (character-based) similarity

o   Conceptual/business scope similarity

4. Tax

4.1 China's New VAT Law: Key Threshold Rules and Implications for Foreign Businesses

China's new Value-Added Tax Law took effect on 1 January 2026, representing the most significant reform to China's indirect tax framework in years. To support implementation and resolve remaining gaps between old regulations and the new statutory framework, the Ministry of Finance (‘MOF’) and State Taxation Administration (‘STA’) issued two key announcements on 30 January 2026 (MOF/STA Announcement [2026] No. 10 and STA Announcement [2026] No. 4) clarifying VAT threshold rules and providing detailed guidance for natural persons and small-scale taxpayers — defined as businesses with relatively low annual taxable sales that are subject to simplified VAT calculation methods and lower tax rates, and that generally cannot credit input VAT against output VAT. For foreign-invested enterprises (‘FIEs’), these clarifications are directly relevant to day-to-day supplier management, invoice handling, and input VAT recovery.

In this Update we only provide high-level summary with some selected detailed thresholds.

Threshold standards for 2026–2027

The monthly and quarterly VAT thresholds remain unchanged from prior policy: RMB 100,000 for monthly filers and RMB 300,000 for quarterly filers. The key change is the per-transaction threshold for natural persons, which has doubled from RMB 500 to RMB 1,000 per transaction or per day, reducing the VAT burden on individuals engaged in occasional or small-value transactions and simplifying administration for both taxpayers and authorities.

For threshold calculations, sales are measured on a net basis after applicable deductions under the VAT rules, not on a gross tax-inclusive basis. Taxpayers cannot artificially split income across transactions to stay below thresholds.

When monthly aggregation applies

Although natural persons typically fall under the per-transaction threshold system, six categories of activity require monthly aggregation against the RMB 100,000 threshold on the basis that they resemble ongoing business operations rather than incidental sales.

These are:

•          interest on newly issued government or financial bonds (issued on or after 8 August 2025, with lump-sum interest amortised monthly);

•          rental income from immovable property (with annual or upfront payments allocated evenly across months);

•          income earned through internet platform enterprises where the platform handles proxy declaration or withholding;

•          sales of scrap products under the reverse invoicing mechanism;

•          insurance agent services and similar activities for securities brokers, credit card agents, and travel industry agents; and

•          any additional categories the STA may designate in the future.

Outside these six categories, the RMB 1,000 per-transaction or per-day rule applies, with VAT declarable through bureau-issued invoices, withholding by a responsible agent (employer, agent, etc.), or self-declaration by 30 June of the following year, a relatively long grace period that simplifies compliance for individuals with occasional income.

Waiving VAT exemptions

A practically important clarification concerns the ability of small-scale taxpayers to opt out of exemptions. A small-scale taxpayer whose sales fall below the VAT threshold, or who qualifies for the 1% reduced levy rate, may voluntarily waive that exemption or reduction, in whole or in part, and issue special VAT invoices instead. This opt-out mechanism is significant because input VAT creditability depends on whether a supplier issues a special VAT invoice. Suppliers below the threshold often prefer the exemption to reduce their own tax burden, but FIEs purchasing from them may need the invoice to maintain their input VAT chain.

Why This Matters

For FIEs, the practical impact of these rules is immediate and broad. Foreign businesses routinely engage natural-person service providers: freelancers, individual consultants, landlords, gig workers on digital platforms, and small-scale contractors. Under the new framework, whether VAT applies to a given transaction, and whether a usable special VAT invoice is available, depends on which threshold category the individual falls into, how their income is aggregated across the month, and whether they have chosen to waive any applicable exemption.

The doubling of the per-transaction threshold to RMB 1,000 is a practical simplification for small and occasional payments, but it also means more individual suppliers will fall below the VAT threshold entirely. This has a direct cost implication: where no VAT is charged, no input VAT credit is available. For FIEs that have historically assumed all suppliers provide creditable invoices, a reassessment of supplier categories is warranted.

The exemption waiver mechanism is a key lever for procurement and contract management. FIEs should establish clear internal policies on whether suppliers are required to waive exemptions, negotiate this at the contracting stage rather than at invoice time.

What to Watch

The 2026–2027 threshold standards are explicitly time-limited, meaning further adjustments are possible from 2028 onward.

The STA has expressly reserved the right to add further categories to the mandatory monthly aggregation list. Any such expansion would directly affect how FIEs assess VAT obligations across their supplier base, particularly in sectors with high concentrations of individual or gig-economy service providers.

More broadly, the new VAT Law is still in early implementation, and further administrative guidance is expected as practical questions arise. FIEs will benefit from proactively mapping their supplier base against the new threshold categories, updating standard contract VAT provisions and confirming withholding procedures.

4.2 China Steps Up Enforcement on Overseas Income Taxation

The STA has issued a reminder, reported by Xinhua on 16 January 2026, calling on taxpayers to self-review overseas income earned between 2022 and 2024 and correct any non-compliance. Where taxes were underpaid, authorities may pursue back taxes and late payment surcharges, and cases involving evasion will be handled accordingly.

This is not at all new law. Chinese tax residents have always been subject to global taxation, but now there is a clear shift into a real enforcement phase. Tax authorities now both have the data and are applying in targeted campaigns their willingness to turn a “on paper” rule into a practical risk.

The following developments explain the current drive:

•          China has been participating in the Common Reporting Standard (CRS) since 2018, under which financial institutions across most major economies automatically share account data with foreign tax authorities. After several years of data accumulation, Chinese tax authorities now hold historical CRS datasets covering a wide range of jurisdictions, including Hong Kong, Singapore, Australia, Canada, Europe, and traditional offshore centres.

•          Those datasets are now being actively used. In 2025, authorities in several provinces publicly disclosed cases where individuals were contacted about unreported overseas income and guided through corrective filings. For example, tax bureaus in Beijing, Fujian, Guangdong, Sichuan, and other regions released guidance and rectification cases involving individuals who failed to declare overseas income, in some cases resulting in substantial back-tax payments and penalties.

•          Finally, we believe fiscal pressures play a role. With traditional revenue sources under strain, tightening compliance on overseas income is an efficient policy lever; one that narrows the tax gap without introducing new taxes or raising rates.

All Chinese tax residents are affected, not just high‑net‑worth individuals; this includes Chinese nationals with routine overseas investments and work arrangements and foreigners that have resided in China for at least 183 days on aggregate per year for six consecutive years.  Affected income includes dividends and returns from overseas shares and funds, interest on foreign bank or brokerage accounts, capital gains from disposing of foreign assets, overseas employment or consulting income, and rental income or royalties from foreign real estate or IP. Crucially, income does not need to be remitted to China to be taxable, it is generally taxable at the point it is realised.

Why This Matters

For foreign nationals living and working in China, this is a direct compliance issue. The combination of CRS data and active enforcement means that previously unreported overseas income is increasingly visible to Chinese tax authorities. And the clock is ticking on the window for voluntary correction, which authorities appear to be keeping open for now.

For multinational employers, global mobility and compensation design come into play:

•          Long‑term secondees may already meet residency thresholds.

•          Offshore elements of pay (director fees, stock awards, consulting arrangements) may be misaligned with China reporting obligations.

What to Watch

The pattern in other provinces in 2025 suggests a typical staged model with gradually tightened enforcement: early reminders and “guided compliance” first, followed by targeted audits and tougher penalties once taxpayers have had a chance to self‑correct. This would be typical PRC law and policy enforcement playbook.

Any SAT guidance narrowing or clarifying the six-year residency rule for foreigners would be significant, as this remains a source of genuine uncertainty for the expatriate community.

5. Digital Space & Data Laws

5.1 Clear & Bright Generative AI Prior to Chinese New Year

The Cyberspace Administration of China (“CAC”), China’s internet watchdog, has launched its annual pre-Spring Festival "Qinglang" (Clear and Bright 清朗行动) cleanup campaign, and this year generative AI has moved to the centre of the action. CAC kicked off a month-long drive aimed at ensuring a suitably ‘festive’ online atmosphere for the 2026 holiday season — but the scope signals something broader than seasonal housekeeping.

What the Campaign Targets

The CAC has identified two main categories of harmful content for removal.

The first is content designed to maliciously incite negative emotions, material promoting anti-marriage or anti-childbearing values, content stoking gender conflict, and posts exploiting the Spring Festival framing for wealth flaunting or fandom-driven hostility. A combination of traditional pre-Spring Festival calls for maintaining order and harmony with the government’s efforts to combat a rapidly ageing society.

The second, and more novel, category is what the CAC has labelled "digital swill" (数字泔水): low-quality AI-generated content flooding platforms at scale. Specific targets include mass-produced incoherent or repetitive AI content, AI-manipulated versions of classic films and animations laced with vulgar content, distorted reimaginings of literary and cultural classics, bulk-manufactured family conflict melodramas engineered for traffic, and fake "inspirational" articles or expert commentary generated to manipulate audiences.

At the time of publication, the CAC has already penalised tens of thousands of accounts across Weibo, WeChat, and Douyin for failing to label AI-generated content, including fabricated viral stories, AI-generated celebrity impersonations, and accounts peddling AI tools using misleading content.

Why This Matters

AI labelling requirement is the most tangible restriction. Chinese regulators have made clear that AI-generated content must be disclosed, and the recent penalty wave shows enforcement moves quickly. Foreign brands using AI tools to generate localised content or marketing materials for Chinese platforms need to ensure labelling practices are airtight and that any agencies producing content on their behalf are doing the same.

What to Watch

The Qinglang campaign is a bit of an annual fixture, but its expanding AI focus reflects a longer-term regulatory direction. The CAC has been steadily building out its AI governance framework (mandatory labelling rules, watermarking requirements, the Generative AI Regulations that took effect in 2023, etc.) and each campaign tends to operationalise those rules in practice.

The scale of account penalties suggests the CAC might be deploying automated detection tools, and the violation types cited are likely to define enforcement priorities well beyond the Spring Festival window. For any business with a meaningful Chinese digital footprint, staying ahead of this regulatory curve is no longer optional.

5.2 Rules Related to Facial Recognition Software

Sensitive Personal Data and Facial Recognition

China continues to tighten oversight of biometric technologies, with facial recognition explicitly classified as processing “sensitive personal information” under the “Personal Information Protection Law” (‘PIPL’). Because biometric identifiers are difficult or impossible to change once compromised, regulators treat them as high-risk data requiring stricter compliance standards than ordinary personal information.

In March 2025, the Cyberspace Administration of China (CAC) and the Ministry of Public Security jointly issued the Measures for the Security Management of Facial Recognition Technology Applications, which took effect on 1 June 2025. The rules establish a comprehensive compliance framework governing how companies collect, process, and store facial data.

Key requirements include:

•          Necessity and proportionality tests: Organisations must demonstrate that the use of facial recognition is strictly necessary for a specific business purpose and that less intrusive alternatives are not reasonably available.

•          Explicit consent and transparency: Individuals must be clearly informed when facial recognition technology is used, and conspicuous notices must be displayed in areas where facial data is collected.

•          Alternative verification methods: Companies may not force users to rely solely on facial recognition for identity verification; reasonable alternative authentication methods must be offered.

•          Data protection impact assessments: Prior to deploying facial recognition systems, organisations must conduct and document a Personal Information Protection Impact Assessment (‘PIPIA)’ evaluating the necessity, risks, and security safeguards of the processing activity.

Operational compliance obligations are also expanding. For example, companies processing large volumes of facial recognition data may be required to register the application with local CAC authorities, and filings must typically be completed within 30 working days once data processing reaches certain thresholds.

Why This Matters

For companies operating in China, particularly those in sectors such as smart retail, hospitality, property management, mobility platforms, and AI-enabled services, facial recognition has become a common feature in customer identification, payment systems, and access control. The new rules significantly raise the compliance threshold for such applications.

Regulators are signalling that biometric processing will be subject to heightened scrutiny, with compliance increasingly focused on demonstrable necessity, documented risk assessments, and clear user consent.

What to Watch

•          Increasing regulatory attention to biometric data as part of China’s broader data governance framework under the PIPL.

•          Greater enforcement activity around improper use of facial recognition in commercial settings (e.g., gated communities, retail environments, or hospitality check-ins).

•          Expansion of filing, reporting, and impact-assessment requirements for high-volume biometric processing.

•          Continued regulatory clarification by the CAC on the boundary between acceptable identity verification uses and excessive biometric data collection.

6. Supply Chain and Export Control Policy

China has recently tightened export control oversight over certain foreign entities in sectors linked to sensitive technologies and defence-related supply chains.

In February 2026, the Ministry of Commerce (‘MOFCOM)’ published two new entity lists targeting organisations in Japan that may be connected to military-related capabilities. The first list designates 20 companies, research institutes, and government-affiliated bodies as restricted entities, citing their alleged involvement in strengthening Japan’s defence-related technological capacity. Organisations on the list include subsidiaries of major Japanese industrial groups such as Mitsubishi Heavy Industries and IHI Corporation, as well as research and aerospace institutions including Japan’s National Defence Academy and the Japan Aerospace Exploration Agency (JAXA).

Under the designation, Chinese exporters are prohibited from supplying dual-use goods, items with both civilian and military applications, to the listed entities without prior government authorisation. The restrictions also apply to third-party transfers abroad of Chinese-origin dual-use items destined for those entities, and exporters are required to halt any ongoing transactions unless special approval is obtained from MOFCOM.

Alongside the restricted list, MOFCOM introduced a separate monitoring or “watch list” covering an additional 20 Japanese organisations across sectors including automotive manufacturing, industrial materials, energy, and academic research, including companies such as Subaru, Hino Motors, Nitto Denko, and energy group ENEOS, as well as several technical research institutions.

Entities placed on this monitoring list are not subject to a full export ban but instead trigger enhanced compliance requirements for exporters. Chinese companies wishing to supply dual-use items to these organisations must submit a case-by-case export application supported by a risk-assessment report and written assurances that the goods will not contribute to military capability development. MOFCOM has also indicated that entities may apply to be removed from the monitoring list if they can demonstrate that their activities do not pose such risks.

Policy Context

The move reflects a broader trend in China’s export control framework toward more targeted, entity-based restrictions on sensitive technologies and supply chains. Similar to export control mechanisms used in other jurisdictions, the approach allows regulators to restrict access to strategic technologies while maintaining limited channels for authorised trade under licensing procedures.

What to Watch

•          Whether additional foreign entities, particularly in sensitive sectors such as aerospace, semiconductors, and advanced manufacturing, are added to similar monitoring or restriction lists

•          How frequently exporters seek and obtain MOFCOM approval for transactions involving listed organisations

•          Potential reciprocal export control or screening measures between China and major technology-producing economies

7. Financial Policy Development of a Sci-Tech Insurance System

On 28 February 2026, the Ministry of Science and Technology (‘MoST’), together with the National Financial Regulatory Administration (‘NFRA”), the Ministry of Industry and Information Technology (‘MIIT’), and the China National Intellectual Property Administration (‘CNIPA’), jointly issued policy guidelines titled “Several Opinions on Accelerating the High-Quality Development of Sci-Tech Insurance to Strongly Support High-Level Technological Self-Reliance” (‘Tech Insurance Policy’).

The Tech Insurance Policy calls on China’s insurance industry to develop specialised products designed to support scientific and technological innovation across the full lifecycle of research, development, and commercialization. The initiative reflects Beijing’s broader effort to mobilize financial-sector tools in support of technological self-sufficiency and industrial upgrading.

Key Policy Measures

The Tech Insurance Policy encourage insurers to expand coverage in several areas that directly address the financial risks associated with emerging technology development, including:

•          R&D risk insurance, covering losses associated with unsuccessful research projects, failed technology transfer efforts, and unsuccessful first-batch product trials.

•          Intellectual property insurance, including expanded coverage for patent litigation and overseas IP disputes.

•          Cybersecurity and network security insurance, designed to mitigate risks associated with digital infrastructure and data protection.

•          Technology commercialization insurance, supporting the adoption of new technologies with limited operating track records.

While some forms of technology performance insurance exist in global markets (particularly in sectors such as clean energy) Chinese policymakers are seeking to develop a more comprehensive ecosystem of insurance products tailored specifically to the country’s innovation priorities.

Focus on Frontier Technologies

The Tech Insurance Policy places particular emphasis on emerging strategic sectors, encouraging insurers to design dedicated products for high-risk, high-innovation fields. These include:

•          artificial intelligence

•          integrated circuits and semiconductor technologies

•          quantum technology

•          bio-manufacturing

•          hydrogen and fusion energy

•          brain–computer interfaces

•          embodied intelligence and advanced robotics

Policy Context

The initiative reflects a growing recognition among Chinese policymakers that technological innovation carries significant financial risk not only for companies and investors, but also for early adopters and skilled employees working in startup environments. By encouraging insurers to share part of that risk, authorities aim to lower barriers to experimentation and accelerate the commercialization of new technologies.

What to Watch

•          The development of specialised insurance products targeting strategic technology sectors

•          Whether insurers receive regulatory incentives or policy support to expand sci-tech insurance offerings

•          Integration of insurance mechanisms with broader industrial policy initiatives supporting technological self-reliance