In the past three decades, China, as an emerging market, has attracted the great inflow of foreign investments. Foreign Direct Investment (FDI) has also become an important tool promoting China’s economic growth. Nevertheless, at present, FDI in China is continuously decreasing, which, on the one hand, indicates that the overseas investment capacity of foreign investors is declining, and on the other hand, shows the Chinese market is becoming less attractive for foreign investments. As a matter of fact, both the external and internal environment are posing a severe challenge on the FDI situation in China.
　　In terms of the external environment, the ongoing global economic downturn in the wake of the financial crisis is slowing down the pace of cross-border investments, especially with no hope of the European debt crisis which started at the end of last year being resolved, EU investment in China decreased by 31.3% in the first quarter of this year. The“Select USA” plan launched by the Obama administration is also causing an obvious return of worldwide investments, which also affects the investments in China. At the same time, some developing countries, especially the other four “BRICS” countries, are also introducing some favorable policies to attract cross-border investments, which will inevitably result in the diversion of cross-border investments.
　　As for the domestic environment, the deepening real estate market is also affecting the interests of foreign investors in China. In the past two years, China’s real estate sector used one-fourth of the total foreign investments, but due to market regulation, foreign investments on this sector make no profits. The withdrawal of these investments has brought a direct impact on FDI.
　　More importantly, with the adjustment of China’s economic structure, longlasting overheated investment in China is being curbed. Especially, the government lowered this year’s GDP growth target, basically abandoning the previous system of blindly pursuing GDP growth at the expense of environment and public interests. The “labor dividend”, which was once a great attraction for FDI, is also weakening. Various factors has made China a less attractive destination for foreign investments.
　　It is worth noting that these negative factors affecting FDI in China cannot be possibly eliminated within a short period. Some factors even appear to be irreversible. In the international environment, the financial crisis has left those western capitalist powers struggling with their own economic problems and a few years after the crisis, the outbreak of European debt crisis proves that the prospect for the end of the financial crisis is actually not as positive as expected.
　　As to the domestic situation, regulation of the real estate market is far from the moment to wind up and as the government systematically strengthens the management of the labor market and proposes to reform the income distribution mechanism, the once appealing “labor dividend” can no longer bring high profit to foreign investors investing in China. Apparently, China cannot attract FDI, like some local governments did in the past, by providing super-national treatment and even at the expense of public interests any more. It has become an objective fact that Chinese market is becoming less appealing to investors, which would inevitably cause FDI in China to go through a long-term decline.