China's impressive economic growth has attracted considerable attention and intense scrutiny by scholars. In this book, Yasheng Huang analyzes the huge flow of foreign direct investment (FDI) into China, which is one factor contributing to - or a consequence of - China's economic growth. China is close behind the United States as a recipient of FDI. The countries pouring money into China are from the West as well as from China's neighbors in Asia. The money comes from small and intermediate businesses in Hong Kong, Macao and Taiwan as well. China's economy thus has become highly dependent on FDI even during the period preceding its entry into the World Trade Organization in 2001. As an example, in 1995, there were a total of 432 foreign-invested enterprises (FIEs) engaged in ivory, jade carving and sculpturing in China, an industry the Chinese people are most experienced with for hundreds of years. Foreign investment is called direct because it allows foreigners to control part of the domestic enterprises. In the US that control is 10 percent, but in China it could go up to 25 percent. The issue of foreign control of domestic enterprises has raised awareness concerning nationalism. But the author says there are two kinds of nationalism, one is economic in which domestic citizens would oppose giving a larger portion of the economic pie to foreigners than the portion they receive, and then there is psychological nationalism, by which citizens would oppose giving control of national assets to foreigners regardless of the economic payoffs.

From 1979, when Deng Xiaoping opened the doors to foreign investors, to 2000, FDI in China amounted to more than 346 billion dollars. Generally speaking, in the 1990s, FDI is distributed across industries in China whereas FDI in Taiwan went mostly to electronics and electrical appliances, which has prompted many studies to note that China has a more liberal policy than Taiwan regarding the use of FDI.

Hong Kong, Macao and Taiwan contributed significantly to FDI flow to China from 1978 to 1999, amounting to 59.3 percent of the total. In trying to classify the sources of FDI in China, several studies used by Yasheng Huang questioned whether FDI from those three countries can be considered as foreign, because they are ethnically Chinese and politically close to the mainland, except in the case of Taiwan.

The author concentrates on reform carried out by Beijing during the two decades following Deng Xiaoping's opening of the domestic market to foreign investment and how FDI was used. Here considerable attention is given to the situation of state-owned enterprises (SOEs), which are said to have received priority in the government's distribution of FDI at the expense of the private sector. During the reform period and market liberalization in China, the state carried out only modest change in ownership of SOEs, which were known for being inefficient and a burden to the government. But Beijing has resisted calls to privatize the large SOEs even though it accelerated privatization of smaller ones starting in 1997. SOEs are known to own considerable assets, brand names and marketing networks while generating low or negative profits. They have become targets of acquisition by multinational corporations.

Several factors create a favorable atmosphere for FDI inflows. The first is the fragmentation of the economy, which prevents domestic firms from being more competitive than they could be under normal circumstances, and drives up the bargaining power of foreign firms. Those domestic firms can invest only within their respective regions in a fragmented economy while foreign firms can chose and pick projects throughout the whole mainland, giving them a larger opportunity to invest where they want. Another factor in a fragmented economy is that the demand for capital is more critical, which make foreign firms more valuable than would be the case.

"As China has successfully attracted the lion's share of FDI among developing countries and has emerged as one of the world's export powerhouse, it is now bracing itself for the greater economic and business challenges of globalization," Yasheng Huang writes. In his view, many fear that China is unprepared for the challenges ahead, because while it has pushed for reform on the external front, internal reform has lagged behind. Some believe that the WTO will help internal reform come to fruition.