Abstract: Based on the stochastic frontier gravity model, this paper examines the impact of the institution quality of RCEP countries on the efficiency of China's outward foreign direct investment, and estimates the efficiency and potential of China's foreign direct investment in RCEP countries. The results show that the political stability, corruption control and democratic freedom of the host country are the main factors to promote the efficiency of China's foreign direct investment, while the government efficiency of the host country is the main factor to hinder the improvement of the investment efficiency, and the legal system and market supervision quality of the host country have no significant impacts on the investment efficiency. There is a low China's investment efficiency in RCEP countrie, and there are large differences among countries. China's investment potential in RCEP countries has a large space to rise. Therefore, China should take the officially signing of the RCEP agreement as an opportunity, objectively evaluate the institutional environment of the host country, actively expand the RCEP market, continuously optimize the investment location and industrial layout, actively carry out cultural integration, and fully tap the investment potential of the RCEP countries.