China is one of the most popular investment destinations in the world. For a number of years in the 1990s, China was the second largest recipient of foreign direct investment (FDI) in the world. Many hail China's large FDI absorption as a celebrated achievement of reforms. The central claim of this book is that the large absorption of FDI by China is a sign of some substantial weaknesses in its economy. FDI inflows into China surged in the 1990s because domestic firms were uncompetitive and they failed to capitalize on new business opportunities. Foreign firms responded by investing in China. China's partial reforms, while successful in increasing the scope of the market, have so far failed to address many allocative inefficiencies in the Chinese economy.