Wang Zhile, a senior foreign investment researcher at the Chinese Academy of International Trade and Economic Cooperation, said China's steel, solar panel, shipbuilding and coal chemical industries are confronting overcapacity, environmental protection laws, backward technologies and low profits.

"As a result, the manufacturing industry's ability to attract FDI will continue to drop this year," Wang said.

The report said investment by foreign companies will switch from eastern areas of China to central regions in the next five to 10 years, where it can reach more domestic markets with developed transportation and a solid industrial foundation.

Zhang Shixian, a researcher at the Institute of Industrial Economics at the Chinese Academy of Social Sciences, said FDI in China had previously been attracted by low-cost labor and manufacturing. Investors are becoming more sensitive about China's move to cut the proportion of labor-intensive industries and low-value-added products.

In the long term, FDI in China will be motivated by a strong desire to seize market share by eliminating rivals and competing with local companies head-to-head, Zhang said.

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