Direct foreign investment (DFI) has been concentrated in the Eastern Region, with focus on labor-intensive manufacturing industries and the real estate sector. DFI has introduced a dynamic force into the Chinese economy through technology transfer and training, industrial linkage effects, more access to international markets, which have promoted market competition and productive efficiency. The host government's capacity to maintain the political stability and sustainable economic growth is the prerequisite for DFI to positively affect the economy. The industrial distribution of DFI should be consistent with the industrial policy orientation and economic development goal of the host country. In the Chinese case, DFI projects in industries such as automobile, computer and other advanced electronic products are primarily for the domestic market. The impact of DFI on inter-regional economic disparity is an important issue for host government policy. Promotion of DFI should be regarded as an essential step to achieve the regional economic development strategy.