According to a report from China Daily, companies in Hong Kong injected the most investment into China in the first eight months of the year, accounting for US$14.1 billion of the US$41.95 billion total, followed by the British Virgin Islands (US$9.91 billion), the Republic of Korea (US$2.46 billion), Japan (US$2.25 billion), Singapore (US$1.64 billion), the United States (US$1.63 billion), the Cayman Islands (US$1.51 billion), the Samoan Islands (US$1.12 billion), Taiwan (US$952 million), and Mauritius (US$753 million). These 10 territories accounted for 86.55% of all foreign investment into China in the eight months to the end of August 2007.

During this period, overseas investors established 24,848 new enterprises in China, down 5.26% year-on-year. However, the value of foreign investment over the same timeframe has increased by 12.8%. The number of new ventures backed by US and European Union investors both fell in the first eight months, by 15% and 7.65% respectively. While the value of investments from the US increased marginally, by 0.77%, the amount invested from the EU dropped dramatically, by 33.3%.

The reason that offshore jurisdictions figure so prominently in China's foreign investment statistics is partly due China's tax structure for foreign and domestic companies, which is due to be replaced on January 1, 2008. Currently, most foreign invested companies pay a much lower rate of corporate tax than their domestic counterparts because they qualify for various incentive schemes and deductions unavailable to local companies. By establishing a subsidiary company offshore, Chinese companies are therefore able to avail of these tax breaks, a process known as 'round tripping'. This practice has inflated China's foreign direct investment figures for years.

The Chinese government has been keen to eradicate incentives for domestic firms to round-trip, and by next year, a long-awaited corporate tax reform will come into force, which aims to unify the corporate tax rate paid by both classes of company at a rate of 25%.

However, this new law may also hit foreign investors with its generalized anti-avoidance provision, potentially catching income or capital flows to overseas investors. In addition, the new rules aim to clarify corporate tax residence, which may cover firms whose executives habitually spend time inside China.