This paper examines empirically the determinants of foreign direct investment (FDI) in Chinese industry using cross-sectional data. The relationship between industry characteristics and the sectoral distribution of FDI is tested based on different sample groups. A test for endogeneity justifies the use of two-stage least square estimation in order to avoid inconsistent results. The evidence suggests that FDI in Chinese industries is significantly influenced by the market size, exports, firm size and the policy towards FDI. The findings from this study generate important policy implications regarding how governments can encourage FDI into technology-intensive industries.