Author: Chung Chen, Lawrence Chang, Yimin Zhang.

The evolution of China's policy toward foreign direct investment (FDI) during the post-1978 period is reviewed and the volume, sources, geographic distribution and composition of FDI are analyzed. It is found that FDI has been positively associated with economic growth, and the increase of total fixed asset investment in China. Foreign direct investment has also forced an increasing number of domestic manufacturers to compete globally. It has also been associated with phenomena such as: (a) the accelerating uneven development between the coastal and inland provinces, (b) worsening income distribution, and (c) declining ideological commitment. While the opening of the Chinese economy to FDI is still an ongoing process, positive stimulating effects of foreign direct investment in China are observed, and these are found to contribute toward the success of its recent economic reforms.