Abstract
This chapter discusses two issues: project selection and location selection. These issues are important because they influence the effectiveness and efficiency of international investment in China. The chapter deals with an introduction of conceptual foundations on the issues, followed by governmental policies on project orientation and locational preference. A host government indirectly influences Foreign direct investment flow through the granting of subsidies for certain types of projects and the imposition of restrictions on others. Foreign manufacturers must also consider location characteristics. Transaction cost theorists view production site specificities as fundamental to choosing where to invest. Project orientation affects the foreign invested enterprise (FIE) eligibility for preferential treatment from the government and its vulnerability to governmental intervention. Foreign investors in China have access to a broad range of special incentives, depending on the location of their venture, the nature of the project, and how the FIE project is classified.