Foreign direct investment has been one of the major drivers of China's economy, since reforms began in 1978. Now in the world's second largest economy, the investment environment and market conditions have changed greatly. More small and medium-sized enterprises are coming to China, especially those in the service sector.

A touch of French culinary arts. Le Restaurant Ecole Institut Paul Bocuse was supposed to provide a short-term dining experience in French Pavilion during Shanghai Expo in 2010, but decided to stay.

"To have a branch here in Shanghai is quite a good foreign image. It gives a wider range of action. And so we have a lot of partners in France or in Europe. It's cool here to try the Chinese market," said Raphael Vetri, exec. chef of Le Restaurant Ecole Institut Paul Bocuse.

Pronic is a leading French firm in sheet metal working. It entered the Chinese market in 1990s using Chinese dealers. But it decided to open its own branch in Shanghai last year to meet increasing market demand.

"Our customers are mainly in the auto industry. China is the world's biggest manufacturer and consumer of cars. It's a market we can't ignore. So we have to operate here, and coming early is always better than late," said Wang Ye, manager of Pronic In-die Solutions.

As a small company, Wang says recent government actions gave a positive signal to Pronic to operate here: such as relaxed requirements for registered capital; and low taxation at Hong Kong levels according to an agreement between China and France.

For three decades, China has been one of the most popular destinations for foreign direct investment. As the economy develops, its investment environment has changed. And so have the types of the investors."

China is not just the world's factory any more. It's also a market that companies can't afford to stay out of.

"Ten years ago, all these kinds of companies from the food industry, in the services, IT, all come here because of those changes," said Philippe Champemond, commercial director, ERAI.

In the early days of opening up, many regional governments attracted investment by offering foreign firms preferential polices, such as tax reduce and cheap land use. The central government has now withdrawn this so-called "super-national treatment" to create a more fair market for domestic firms.

"Large firms if they are engaging in labor-intensive industries, if they are engaging in polluted industries, they may actually find the investment environment not as friendly as before. For the small business investors, they may find ok, the Chinese investment environment becomes more friendly to them. They are more willing to enter," said Chen Bo, assoc. chair of Int'l Trade Dept, Shanghai University of Finance & Economy.

China is transforming its patterns of economic growth, aiming for more sustainable development. There are many opportunities and challenges for foreign companies during this process. The government needs to tailor its investment polices to keep smaller companies coming.