by XIN Yuan

China will extend tax exemptions on bond interest earned by foreign institutional investors in its onshore bond market through end-2027, the finance ministry and tax authorities said, as Beijing seeks to sustain overseas inflows into yuan assets.

The Ministry of Finance and the State Taxation Administration said interest income obtained by overseas institutions from investing in domestic bonds will be temporarily exempt from corporate income tax and value-added tax from Jan 1, 2026 to Dec 31, 2027.

The exemption will not apply to interest income that is effectively connected with institutions or establishments set up in China by overseas investors, the notice said.

Recent deals point to steady foreign demand for yuan bonds. Bank of China recently assisted German industrial group Henkel in issuing 1.5 billion yuan of panda bonds in China's interbank market. On Jan 8, Barclays launched a 4.0 billion yuan panda bond sale.

Global banks have turned more constructive on China assets. Goldman Sachs said in a recent outlook that China's real GDP could grow 4.8% in 2026, above a 4.5% market consensus, and forecast gains of 20% for the MSCI China Index and 12% for the CSI 300 Index over the year. By end-2027, China's equity market could rise 38%, it said.

China's state-run Economic Daily reported, citing UBS Securities, that aggregate A-share earnings growth could accelerate to 8% in 2026 from 6% in 2025, supported by faster nominal GDP growth, rising corporate revenues, continued policy support and measures to curb excessive competition that help margins recover.

HSBC's chief economist for Greater China, LIU Jing, said innovation-led growth gathered pace in 2025, with advances in artificial intelligence, including DeepSeek, and progress in innovative drugs, adding that innovation is set to remain a key draw for foreign capital.

Separately, China is stepping up efforts to stabilize foreign investment. A national meeting on foreign investment held in Beijing on Jan 14–15 called for stronger promotion, the building of an "Invest in China" brand, and support for reinvestment and localization by foreign firms.

The Catalogue of Encouraged Industries for Foreign Investment (2025 Edition), effective Feb 1, 2026, expands the encouraged list to 1,679 items, steering capital toward advanced manufacturing, modern services and high-tech industries, as well as central and western regions, northeast China and Hainan, with incentives covering tariffs, land use and taxation.