So far, the literature is scarce regarding the local financing of FDI and its impacts on a host country’s economic system. In this paper, we find the logic and empirical evidences of the local financing in China, the world’s largest recipient of FDI. We also conclude that the local financing of FDI can explain why foreign investors intend to give up higher investment return and keep expanding their investment in China. Additionally, three primary paths of local financing are discussed in this paper, which foreign investors rely on to implicitly utilize domestic funds. Moreover, the conglomeration of potential risks has been caused due to the path dependence of local financing, which is a bad sign to China’s financial safety.