Abstract:: Nowadays, competition among the countries that are trying to attract foreign capital is high due to the limited amount of foreign capital available and the increasing competition among countries wishing to get benefits from inward FDI. However, the factors that create the investment climate in one country and determine its attractiveness for foreign investors are numerous and complex. Both theoretical and empirical evidence shows that investment promotion has played an important role on the amount and orientation of inward FDI. This paper focuses on the analysis of the effects of tax incentives, which is widely used in many countries, and the role of promotion, strategy, techniques and institutions responsible for FDI attraction based on the experiences in a number of countries with special focus on China’s experience. To better utilize FDI to match the objective of economic development with the trends of FDI flows in the world, the paper argues that a targeted investment promotion strategy can play a powerful economic development role as it influences not only the attractiveness of location for inward investment, but also the benefits accruing to the local economy. This implication is especially important for China in the current situation. However, There is no simple ‘one for all’ and ‘one for always’ policy framework for every developing country, which has different comparative advantage and in different stage of development.