The paper states that although China has lost one-fifth of its agricultural land due to environmental degradation and economic development since 1957, still the government has taken the initiative to rectify these damages through reforestation and other methods. Focusing into the economic conditions of the country, we notice that real gross domestic product (GDP) from 1979 to 1999 was growing at an average annual rate of 9.7 percent, (China- Overview of Economy, n.d.) leading China as one the speedy growing economies. China’s rapid development has helped 200 million people to come out of poverty according to the World Bank Report. The first of economic reform of China commenced in 1978 which comprised of reform in the agricultural production system in rural areas mainly the farmers were permitted to sell off their crops in the free market which attracted foreign investment, boost exports and high technology products were being imported into the country. It is the country with the highest population in the world accounting for 21% of the world’s total population (Phillips, 2000). The average population density has been accounted as 134 per sq km in the year 2002, but the distribution of the population throughout China is unequal. Meanwhile, the government had set up four special economic zones (SEZ) to encourage exports as well as imports. The reforms had a promising impact on the Chinese economy. Gradually price controls had been eliminated by the government over a wide range of products. The consequences lead to the doubling of agricultural output and industrial gains in the year 1980s. The Chinese government faced various difficulties while carrying out these reforms like it has struggled to collect revenues, tried to eradicate crime and corruption and also maintained daily activities of the giant state-owned companies. By 1999 China achieved the rank of the second largest economy in the world after the USA although the GDP per capita was much less than that of USA. One of the major sources of China’s capital growth is Foreign Direct Investment (FDI). The USA being the third largest investor in China accounts for 8.0 percent (US$24.6 billion) of total FDI in China from 1979 to 1999.