I’m not so sure that China wants to limit foreign investment in such a drastic way. I can see the benefit of internal companies gaining a foothold in the industry, but the new tax laws are going to interfere with the economy and reduce competition. Places like the Silicon Valley thrive because of the constant mix of world cultures and competition arising from brilliant minds. China would not be in a better position by limiting competition from the market, even if it helps local businesses.

See also this just posted China Law Blog post for a different take on the issue, China’s Interior is Missing Some Parts.