Abstract: To study the static FDI effect of CAFTA, the paper does an empirical study using the improved Framework of FDI Effects of CAFTA and FDI data of China and ASEAN during the period 1995-2006. To study the dynamic FDI effect, the paper analyses the investment effects of CAFTA mainly from four perspectives: economies of scale effect, policy expectation effect, economic growth effect and diffusion of technology effect. The conclusion shows that: as to static FDI effect, opening and expansion of the market will make CAFTA more attractive in attracting FDI. However, CAFTA will not improve mutual investment between China and ASEAN greatly and there is no competition in attracting investment from outside between the two sides; as to dynamic FDI effect, except the diffusion of technology effect, the economies of scale effect, policy expectation effect and economic growth effect increase CAFTA's attraction of FDI.