This chapter presents an analysis of the development and characteristics of direct foreign investment (DFI) in China since 1979, with focus on the policy evolution and a comparative analysis of the investment patterns of major investing countries. It discusses the factors accounting for the regional distribution of DFI. The chapter provides an analysis of the industrial composition of DFI by major investors, and the reasons for differences in DFI composition between major investing countries. The fluctuations of DFI reflect adjustments in the Chinese government's economic policies and resulting changes in the investment environment. The Chinese government responded to the sharp fall in pledged DFI by publishing the 'Provisions for the Encouragement of Foreign Investment' in October 1986. DFI in joint oil exploration was at a standstill due to oil price drop in world markets and unfruitful exploration records. DFI has been concentrated in the industrial sector, real estate and public services.