Foreign direct investment (FDI) has made a dynamic surge into the world economy in the last fifteen years by growing strongly at rates well above those of global foreign trade. China and India attract a significant portion of the global FDI, however, the magnitude of China’s FDI flows is much larger than that of India’s. The special reason for China’s super-magnetic attraction of FDI is intriguing. This dissertation is an attempt to answer the question by making a comparative assessment of the legal framework governing FDI in China and India, with special reference to U.S direct investment, thereby identifying lessons for India and other developing nations in order to increase their FDI inflows.