For years China has aggressively courted foreign owned firms with a number of tax incentives.  China has had to balance the economic incentives necessary to draw foreign firms with their desire to nurture and protect domestic firms. 

Chris Devonshire-Ellis at China Briefing has an interesting article on China's shift towards domestic firms through the phaseout of certain tax incentives for foreign-owned entities.  An excerpt from the article:

Foreign investors have long enjoyed a variety of incentives, including the once very attractive five year tax breaks, but these are now long consigned to the scrap heap as China aims to put foreign investors on the same financial platform as its domestic companies. However, in some regards this makes it harder for foreign companies to compete. While legally foreign investors should be treated the same way as domestic corporations, in reality they are not. Foreign invested enterprises are considered as Chinese companies in law, however treatment of them in administrative areas often leaves them at a decided disadvantage when compared with Chinese owned domestic businesses.

An interesting note in the article is that China is reforming its capital markets to enable foreign-owned firms to raise capital in the Chinese capital markets.  Previously foreign-owned entities have been prohibited from doing so.

You can read the full article at: China Phasing Out More FDI Tax Incentives