**Introduction** China benefited from foreign direct investment (FDI) by using it as a policy-guided tool to accelerate industrial upgrading, deepen participation in global value chains, and strengthen domestic manufacturing ecosystems. FDI continues to contribute to China’s high-technology manufacturing capacity, export performance, and productivity outcomes, even as global investment becomes more fragmented and geopolitically sensitive[1][2]. **Contextual background** China is one of the world’s largest host economies for FDI by stock, reflecting decades of sustained inflows into manufacturing and tradable sectors[1]. Unlike laissez-faire liberalization models, China guided FDI through sectoral priorities, localization incentives, and industrial clustering. Since the late 2010s, policy emphasis has increasingly shifted toward “quality” FDI — investment aligned with technological upgrading, supply-chain depth, and industrial resilience[3]. **How FDI contributed to China’s industrial upgrading** **1.** **FDI supported technology upgrading and higher productivity in manufacturing** Manufacturing remains a central destination for inward FDI in China. By the early 2020s, manufacturing accounted for roughly 30% of China’s inward FDI stock, with a growing share directed toward medium- and high-technology industries such as machinery, electrical equipment, and transport equipment[1]. Foreign-invested enterprises in China were seen to exhibit higher labor productivity, greater capital intensity, and stronger export orientation than domestic averages. These differences generate spillovers through supplier relationships, labor mobility, and demonstration effects, contributing to broader capability upgrading[2][4]. Consistent with this process, medium- and high-technology manufacturing accounted for over 40% of China’s total manufacturing value added by the early 2020s, reflecting a structural shift away from low-value assembly[5]. **2.** **FDI anchored China’s role in global value chains and exports** FDI has been a key mechanism linking China to global value chains. Foreign-invested enterprises remain major contributors to China’s export performance, accounting for around one-third of total exports and a disproportionately large share of high-technology exports in electronics, electrical equipment, and machinery[4]. This integration supported scale expansion and learning-by-doing. By the early 2020s, China’s share of global manufacturing value added exceeded 30%, making it the largest manufacturing economy worldwide[5]. FDI-linked production networks helped anchor multinational activity in China even as some labor-intensive stages shifted to lower-cost economies elsewhere in Asia[2][4]. **3.** **FDI reinforced industrial ecosystems and clean-energy manufacturing scale** FDI has reinforced dense industrial ecosystems rather than isolated production enclaves. In clean energy and electric-vehicle-related value chains, inward investment contributed to scale-building, supplier upgrading, and process standardization within tightly integrated manufacturing clusters[3][4]. These ecosystem dynamics supported rapid cost reductions. Global solar photovoltaic module prices declined by more than 80% between 2010 and 2023, consistent with cumulative learning effects and large-scale manufacturing integration in which foreign and domestic firms co-located within China’s production networks[3][4]. **Conclusion** China’s benefits from FDI are evident in measurable outcomes: higher productivity manufacturing, deep integration into global value chains, and leadership in selected clean-energy and advanced manufacturing sectors. Rather than serving primarily as a source of capital, FDI functioned as a conduit for technology diffusion, export capability, and ecosystem development. This continues to shape China’s industrial structure, even as global investment patterns become more fragmented[1][2][3].
