Over 4,300 Companies Stripped of Their High-Tech Enterprise Status

Local governments across China have actively encouraged companies in their jurisdictions to apply for “High and New Technology Enterprise” (HNTE) status. Many have even introduced subsidy and reward schemes to boost participation, giving businesses stronger incentives to pursue certification. A large ecosystem of intermediaries has also emerged to help firms prepare applications.

Yet in the past two years, the number of companies losing HNTE status has risen sharply. This trend reflects a tightening effort to standardize HNTE qualification management, curb improper use of tax incentives, and support the broader goal of building a unified national market.

Author: Du Tao
Cover photo: Archive materials of the newspaper
(Economic Observer, incomplete statistics)

In 2025 alone, more than 4,300 companies were removed from the HNTE roster, according to incomplete statistics compiled by Economic Observer.

In December 2025, more than ten provinces and cities—including Jiangxi, Beijing, Qingdao, and Sichuan—revoked HNTE status for over 800 companies in a single month. Among them were listed firms.

The most common reason behind these removals was failure to meet required ratios—especially the share of R&D expenses. In October 2025, Hunan Province disclosed a list of 80 companies stripped of HNTE status. Of those, 61 were removed due to an insufficient R&D expense ratio, while the remaining cases were mainly tied to a shortfall in the proportion of revenue generated from high-tech products or services.

Listed companies were not spared. In December 2025, the Guangdong Provincial Department of Science and Technology, the provincial finance department, and the Guangdong branches of the State Taxation Administration jointly issued a notice revoking HNTE status for 45 enterprises, including listed firms such as Hongmian Co. (000523.SZ) and KAIYI Elevator (002774.SZ).

HNTEs are companies operating in state-supported high-tech fields that continuously conduct R&D and commercialize technological achievements, forming core proprietary intellectual property and using it as the foundation of business operations. To qualify, firms must meet thresholds related to R&D spending, patent holdings, and other criteria. Successful certification brings a range of policy benefits, including tax incentives.

Data from the China Torch Statistical Yearbook show that from 2016 to 2018, the number of HNTEs surged by more than 30% annually. From 2020 to 2024, the total grew by 83% to exceed 500,000. However, growth slowed significantly in 2024: the number of HNTEs rose only 1.9% compared with 2023, the lowest increase in nearly 15 years.

As expansion has cooled, oversight has intensified. Economic Observer’s incomplete statistics indicate that 706 companies lost HNTE status nationwide in 2022, 1,758 in 2023, and 3,935 in 2024. In 2025, the number exceeded 4,300.

This tightening has continued into 2026. On January 7, the HNTE Accreditation Management Work Network published two batches of revocations in Henan Province alone, involving more than 1,000 companies.

A tax and finance expert told Economic Observer that many local governments have pushed companies to apply for HNTE status and set reward and subsidy standards to encourage participation. Meanwhile, intermediaries have helped companies package and submit applications. In some cases, certain firms seeking tax benefits have “crafted” financial data to meet application targets. The recent wave of revocations, the expert said, reflects both the need to regulate HNTE certification and the broader objective of standardizing tax incentives in line with the unified market agenda.

01
Revoking HNTE Status

A finance director at one company has recently been consumed by the fallout of losing HNTE status. The company was revoked in 2025, and the immediate pressure point is back taxes.

Under the Measures for the Administration of HNTE Accreditation, once a company is disqualified, tax authorities will claw back the preferential tax benefits enjoyed starting from the year the company ceased to meet eligibility requirements. The firm must repay corporate income tax at the statutory 25% rate and pay a daily late fee calculated at 0.05%.

The finance director explained that HNTE applications typically require submission of data from the previous three years. For example, a company applying in 2021 would be assessed based on figures from 2019 to 2021. If approved, the company can enjoy the relevant benefits for the following three years. Certification must then be reviewed every three years, generally led by science and technology authorities with participation from tax bureaus. The review essentially checks whether key indicators over the prior three years still meet the thresholds.

He noted that some online commentary has blamed product quality issues for revocations, but in practice this is not the main driver. Most revocations are tied to financial and compliance metrics. Companies fail to meet hard requirements—such as having high-tech product (or service) revenue account for at least 70% of total revenue, or keeping R&D expenses above a minimum percentage of sales revenue.

The core legal basis for HNTE accreditation comes from the Enterprise Income Tax Law of the People’s Republic of China and the Measures for the Administration of HNTE Accreditation.

One key rule applies tiered R&D expense ratios over the past three fiscal years, based on company scale. For firms with annual sales revenue below RMB 50 million, R&D expenses must be no less than 5% of sales revenue. For those between RMB 50 million and RMB 200 million, the requirement is no less than 4%. For firms above RMB 200 million, it is no less than 3%. In addition, domestic R&D expenses must account for at least 60% of total R&D spending.

A 2025 draft revision proposed raising the R&D expense ratio requirement for small and medium-sized enterprises to 7%, while also explicitly prohibiting non-R&D expenses—such as production workshop utilities or depreciation of ordinary equipment—from being counted as R&D expenditure.

In the finance director’s case, the company was removed because its R&D expense-to-revenue ratio failed to meet the standard. He said the company had a sudden surge in revenue due to an extra income item in one year, pushing the denominator up sharply and driving down the ratios for both R&D spending and high-tech product revenue—ultimately causing the failure.

He added that tax authorities may have identified inconsistencies between the company’s revenue data and HNTE compliance requirements and shared that information with science and technology authorities for follow-up. Beyond tax data, the three-year review also assesses other factors, including innovation outputs such as patent holdings—especially invention patents—as well as technical and economic scoring.

02
What’s Behind the Wave of “Delistings”

Entering the second half of 2025, the pace of HNTE revocations accelerated.

Ye Yongqing, a partner at Anli Partners, told Economic Observer that the removal of thousands of companies reflects the combined impact of policy direction changes, upgraded regulatory tools, and weaknesses in corporate compliance. From public lists released by different regions, the main reasons consistently include insufficient R&D expense ratios, inadequate high-tech revenue share, and gaps in compliance management.

The finance director agreed that the R&D expense ratio is often the easiest metric to fall short on.

On January 19, 2025, China Rare Earth announced that its controlling subsidiary in Hunan, Zhongxi (Hunan), received a Tax Matters Notice from the local tax authority in Jianghua Yao Autonomous County. According to an official announcement revoking HNTE status for several companies, Zhongxi (Hunan) was removed due to an R&D expense ratio that did not meet the requirement.

To “fill the gap,” some companies have attempted to include non-R&D spending under the R&D umbrella to reach the minimum ratio.

A tax official said that when R&D ratios are too low, some firms try to reclassify other costs as R&D expenses. Personnel costs are a major component of R&D spending, and some companies have reportedly included wages of non-R&D staff to meet the threshold. “If personnel expenses are abnormally high, it immediately draws the attention of tax authorities,” the official said.

Ye shared a similar case from his client base. A high-tech enterprise in the electronics sector historically spent tens of millions of yuan annually on R&D, enough to meet the standard when its revenue base was smaller. But as sales expanded to tens of billions of yuan, the R&D budget, though growing, struggled to maintain the minimum 3% ratio. “For large companies, a 3% R&D ratio can be a very demanding requirement,” he said.

Ye believes recent revocations generally fall into three categories.

First, under stricter tax enforcement and higher standards, this is a healthy “survival of the fittest” playing out at scale. Many companies may have once qualified, but over time their technology upgrades and innovation capacity did not keep pace with rising expectations. In earlier enforcement environments, localities often leaned toward maintaining prior certifications to encourage stability—until stricter oversight made non-compliance harder to overlook.

Second, tax enforcement has increasingly emphasized retrospective checks. With more frequent “look-back” inspections, companies that previously managed to slip through under looser compliance expectations are now being exposed. This is a major reason behind recent cases where HNTE status has been re-evaluated, revoked, or adjusted—essentially settling old compliance accounts.

Third, there may be cases where companies historically did qualify—or arguably still qualify—but have weaknesses or defects in tax compliance management that trigger adverse outcomes.

03
How Revocations Reshape Business Reality

China now has a large HNTE base. At a State Council Information Office press conference on September 18, 2025, Minister of Science and Technology Yin Hejun stated that in 2024, the number of HNTEs exceeded 500,000, up 83% from 2020.

To encourage stronger R&D investment, both central and local governments have offered substantial incentives. Ye noted that being recognized as an HNTE signals that a company—and often its sector—aligns with national encouragement and policy support.

On the tax side, the corporate income tax rate falls from 25% to 15%, reducing tax burden by 40%. Local governments also provide a variety of benefits. For example, Binjiang District in Hangzhou reportedly grants RMB 300,000 to newly certified HNTEs and RMB 100,000 for re-certification. City-level incentives add RMB 100,000 for new certification and RMB 50,000 for re-certification. In addition, HNTE status can be a critical baseline requirement in qualification assessments, land and talent policies, and even certain bidding processes.

That also means losing HNTE status can trigger multiple shocks.

Regarding tax incentives, once the status is revoked, tax authorities will reclaim the preferential treatment enjoyed from the year the company is deemed no longer eligible.

On December 5, 2025, Guangzhou Hongmian Zhihui Sci-Tech Innovation Co., Ltd. disclosed that after an initial internal review, it had filed and paid corporate income tax at the 25% rate since 2021. As a result, the revocation of its HNTE status starting from 2021 was not expected to impact operating performance immediately, though the final impact would depend on further tax authority verification.

On December 12, 2025, KAIYI Elevator announced that due to revocation of its HNTE status for 2021 to 2023, it needed to repay the tax benefits previously enjoyed and associated late fees. After a comprehensive tax self-audit, the company reported additional taxes of RMB 22.1593 million and late fees of RMB 6.5428 million, totaling RMB 28.7021 million. As of the announcement date, it had fully paid the amounts and did not face administrative penalties. The repayment and late fees would be booked into 2025 profit and loss, and the company estimated an impact of approximately RMB 27.6254 million on its 2025 net profit.

The finance director emphasized that back taxes are not necessarily the toughest challenge. The deeper issue is reputational and market perception: stakeholders may question whether the company’s operations are healthy, whether its industry remains policy-supported, and whether its products and capabilities are truly “high-tech.”

Ye argued that disclosed cases suggest three immediate pain points for companies stripped of HNTE status: tax repayments, subsidy clawbacks, and tighter financing conditions. Over the long term, the impact could continue to weigh on growth.

He added that beyond losing tax benefits, the fallout can extend across multiple domains. Many R&D subsidies require HNTE status as a prerequisite. Capital market pathways can also become more difficult, particularly for listings on boards that emphasize innovation such as STAR Market and ChiNext. In addition, bank credit lines, technology-focused lending support, and preferential equipment financing may all be affected once the HNTE credential is gone.