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Foreign direct investment (FDI) has become a much desired commodity by nations, regions and cities throughout the world. Indeed, governments bid for FDI because it is commonly thought to be an important engine of economic growth, job creation, and technological upgrading. The People’s Republic of China (PRC), the developing world’s largest recipient of FDI and one of the world’s fastest growing economies, is often cited as evidence for the beneficial effects of FDI. Given the PRC’s size and the huge allure of its cheap labor force and customer base, one would think that if any country had the bargaining power vis a vis multinational corporations to benefit from FDI, it would be China. But does FDI really deliver these commonly perceived benefits? To answer this question, we study the impact of inward FDI on wages, job creation, investment and tax generation in the PRC from 1986-1999 by running panel regression analysis on provincial level data. An innovation of our analysis is to distinguish the impact of FDI inflows from that of economic liberalization, per se. We find that, contrary to the conventional wisdom, inward FDI has a relatively small positive impact on wages and employment, while having a negative impact on domestic investment and tax revenue. We suggest that the decentralization of the FDI bidding process in China contributes to these negative outcomes, and argue that the limitation on FDI management tools associated with China’s WTO entry is likely to further reduce the benefits of FDI for Chinese workers and citizens . Elissa Braunstein is Assistant Research Professor in the Political Economy Research Institute (PERI), University of Massachusetts, Amherst. Gerald Epstein, also at UMass Amherst, is Professor of Economics and Co-Director of PERI. Many thanks to: Robert Feenstra for sharing his data set on China; James Heintz, Tom Hertz, Mark Brenner, Bernie Morzuch and Will Milburg for their help and advice; Andong Zhu for his research assistance, and Professor Yan Bin for hosting Epstein during his research visit to Xiamen University, Fujian Province, PRC. The authors also thank the Ford and Rockefeller Foundations for financial support. Of course, all remaining errors are ours alone.