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Ever since the economic reforms and the open door policy of 1978, China has experienced a dramatic industrialization. The Chinese government, heavily influenced by Communist values, recognized the need to open up to international trade and become more of a capitalistic country. Hence, reduced trade barriers followed with the economic reform, which has made foreign direct investment increase rapidly. The country made a desired commitment by entering the World Trade Organization, WTO in 2001. The expected consequences were a more rapid development of industries and increasing competition, because of even fewer restrictions on foreign investment. There are a lot of reasons for writing this thesis about China. The country is today an economic giant with a growth in real GDP of on average nine percent per year since 1981 and exceeding 10 percent in recent years. If this growth rate persists, the World Bank is expecting China to become the largest economy in the world in the near future. China has developed clear policies to enhance an export processing type of FDI and has therefore set up several economic zones for foreign investors. For China, this becomes a clear advantage when it comes to attracting FDI, and according to the UN Conference on Trade and Development, China surpassed the United States as the world's largest recipient of FDI for the first time in 2002. Foreign direct investment (FDI) policies play a major role in the economic growth of developing countries around the world. Attracting FDI inflows with conductive policies has therefore become a key battleground in the emerging markets. The prospect of new growth opportunities and outsized profits encourages large capital inflows across a range of industry and opportunity types. And this has led to competition among the states in formulating flexible policies and providing incentives to woo private investors to invest more and more.