This chapter presents a comparative study of the production characteristics and efficiency of foreign-invested enterprises and domestic firms in China. It discusses the intensity of factors of production and accounts for the different use of capital and labor in both foreign-invested enterprises (FIEs) and Chinese domestic firms. The chapter provides a comparative analysis of capital efficiency in the different types of firm by estimating the incremental output-capital ratios. In order to properly assess the impact of direct foreign investment on Chinese industry growth, a comparative study of the production characteristics and efficiency of FIEs and domestic firms, is necessary. There is a significant difference between FIEs and Chinese domestic firms in capital intensity. The higher average productivity of labor in FIEs can be explained by a higher capital-labor ratio, higher technical and management efficiencies. In fact, there are many factors contributing to the differences between domestic firms and FIEs in factor productivity.