Certain　institutional　barriers　of　China　can　hinder　investments.　This　paper　examines　the　impact　of　fiscal　incentives　and　implicit　incentive　policies　on　the　degree　of　resource　distortions　in　FDI　allocation　by　using　the　provincial　data　of　manufactures　from　1994　to　2013.　This　paper　reviews　the　empirical　literature,　specifically　addressing　various　types　of　incentives　for　Foreign　Direct　Investment　(FDI)　and　how　FDI　can　lead　to　resource　reallocation　effects.　The　analysis　shows　that　fiscal　incentive　policies　to　inward　FDI　tend　to　decrease　the　resource　misallocation,　whereas　implicit　incentives　increase　the　resource　misallocation.　©　2018　Taru　Publications.