This article evaluates the effectiveness of the foreign direct investment (FDI) legal system in China, using the Ideal Institutional Paradigm developed by the World Bank and other international development agencies. According to the questionnaire and interviews conducted by the author, the FDI legal system in China remained ineffective in attracting FDI. Laws are sometimes inaccessible and often subject to unexpected changes. Government officials sometimes implemented laws inconsistently whilst courts often implemented laws subjectively, rather than objectively. Court judgements were sometimes interfered by politician and court proceedings often subject to delays. To make it worse, decisions by courts and arbitration tribunals were often poorly enforced.
Such ineffectiveness of the legal system means that foreign investors would be more inclined to resort to international forums, rather than to domestic courts and tribunals for settling disputes. As China has widened the access to international investment dispute settlement mechanisms in its BIT practice, it anticipated that international investment treaty based disputes involving the Chinese government will be on the rise in the years to come. It is argued that, as a countermeasure, China should work harder to strengthen the law enforcement mechanism, which would also contribute to the eventual establishment of a rule of law in the country.