This study is an attempt to empirically examine the spillover effects from the entry of foreign direct investments using industry level data of Chinese anufacturing sectors for the period 1999-2005. In the panel data models, I consider both the horizontal and vertical pillover effects of FDI. The empirical results are consistent with positive horizontal and backward productivity spillovers from FDI, but forward productivity spillovers turn out to be insignificant. Through further research, this paper also finds that the spillover effects may be nonlinear, which follow an inverse U-shaped pattern. Before the critical point is reached, foreign direct investment will bring more technical spillovers; but beyond the point, more FDI inflows will also undermine the spillover effects.

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