The aim of this study is to examine the impact of FDI on the total factor productivity of the forest products industry in China. We investigated three forestry-related manufacturing industries in the study. The first is the wood products industry, which encompasses the processing of timber and the manufacture of wood, bamboo, rattan, palm, and straw products. The second is the manufacture of furniture, and the third is the manufacture of paper and papermaking products. We used firm-level census data related to 78,555 forestry firms for the period 1999-2007to conduct our tests for within-firm, within-industry, and vertical effects, and calculated the effect of FDI on the productivity of Chinese forestry firms. In this study FDI is divided into two categories: capital from HMT (Hong Kong, Macau, and Taiwan) regions and capital from non-HMT regions. The impact of FDI on the productivity of the forest products industry is complicated. At the industry level, FDI from HMT regions tends to have a significant positive impact on the productivity of the wood products industry. FDI from non-HMT regions and HMT regions tends to have the same impact on the productivity of the forest products industry in terms of the forward effects but a different impact in terms of the backward effects. Our findings have immediate I'm plications for policymakers in China as well as for the governments of less-developed countries that are for mulating their foreign investment policies.