The study traces the growth of the direct foreign investment inflows (DFIs) in China and its distribution by sector, receiving regions and source countries. It also looks into the trends and patterns of Chinese outward direct investments. Direct investment flows into China is shown to be significantly affected by China’s GDP growth rate, wage rate and exchange rate as well as the world’s GDP growth rate. Policy factors play a catalytic role. China’s overseas direct investment policies, likewise, appear to be influenced by home country and host country variables. The study has also shown that the massive flows of inwards DFIs have significantly contributed to China’s capital formation and export performance. Furthermore, the improved shares of China as well as the four ASEAN countries in the global supply of DFIs do not indicate a crowding-out effect. Two-way DFI flows between China and ASEAN countries, particularly Thailand and Malaysia, have become more and more important since the early 1990s.
