Trends, Patterns and Determinants of Foreign Direct Investment in China

Foreign direct investment (FDI) has played a pivotal role in the transformation of the Chinese economy. It is the largest host of FDI among the developing world, attracting over one-third of total world investment. China’s success in attracting FDI appears to have been linked with its large domestic market, openness, quality of physical infrastructure and lower wage rates. While China remains an attractive location for foreign investors, our findings point to the need to remove the bias against private sector by privatizing state-owned enterprises to facilitate foreign investment.