China Country Summary

FATF Status

China is not on the FATF List of Countries that have been identified as having strategic AML deficiencies

Compliance with FATF Recommendations

The last follow-up Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in China was undertaken in 2022. According to that Evaluation, China was deemed Compliant for 9 and Largely Compliant for 22 of the FATF 40 Recommendations. It remains Highly Effective for 0 and Substantially Effective for 3 of the Effectiveness & Technical Compliance ratings.

China has been actively addressing corruption through a large-scale anti-corruption campaign initiated in 2012, which has led to significant investigations across various sectors, including the government and military. Despite these efforts, challenges remain, as the application of anti-corruption measures can be inconsistent and discretional, and systemic issues in governance and law enforcement continue to allow criminal networks to thrive, particularly in areas like human trafficking and cybercrime.

In 2023, China's economy faced significant challenges, evidenced by a notable decline in foreign direct investment (FDI), which fell by 13.7% to $163 billion, making it the fourth-largest FDI destination globally despite the drop. Factors contributing to this downturn included a slower-than-expected economic recovery post-COVID-19, increased regulatory restrictions, and geopolitical tensions, particularly with the United States. The Chinese government has implemented new laws affecting foreign investments, including tighter controls on data sharing and increased scrutiny of foreign consultancies, which have raised concerns about the predictability and transparency of the investment climate in the country.

China's regulatory environment remains one of the most restrictive for foreign investors, with a ranking of 11th in the OECD FDI restrictiveness index, reflecting stringent limitations on foreign ownership and joint venture requirements in key sectors. The government continues to emphasize the development of state-owned enterprises (SOEs) and has prioritized domestic firms through various industrial policies, which further complicates the landscape for foreign businesses seeking to enter or expand within the Chinese market. Despite some recent efforts to improve the investment environment, such as tax incentives and the extension of tax holidays for foreign investors, many companies remain skeptical about the actual implementation of these reforms and the overall openness of the Chinese market.

Moreover, the ongoing geopolitical tensions and China's increasing economic alignment with Russia have added layers of complexity to the investment climate, leading to heightened scrutiny and caution among foreign investors. The PRC's commitment to maintaining control over critical sectors and its focus on self-sufficiency in technology and manufacturing continue to shape the investment landscape, making it imperative for foreign companies to navigate a challenging regulatory environment while balancing compliance with local laws and international standards. As China strives to balance its economic ambitions with national security concerns, the future of foreign investment in the country remains uncertain, prompting potential investors to carefully assess the risks and opportunities before entering the market.