The sharp decline, resulting in a two-year low figures, was in contrast with a minor 0.2-percent increase seen in June, the Ministry of Commerce (MOC) said.

Constant reforms helped China remain the biggest recipient of foreign direct investment (FDI) in the last three decades due to liberal investment environment despite being a Communist nation.

However, increasing labour costs and a crackdown on MNCs, including Microsoft, led to a huge commotion among foreign investors who flocked to China till recently.

For the first seven months, the FDI, which excludes investment in the financial sector, stood at USD 71.14 billion down 0.35 per cent from the same period last year.

"With China speeding up economic restructuring, it is normal for us to have some fluctuations in FDI figures," said Shen Danyang, spokesman of the MOC.

"But such fluctuations are not evidence for changing trends," state-run Xinhua news agency quoted Shen as saying.

According to the MOC, foreign investors set up 13,249 new companies in the first seven months of 2014, overall up 1.6 per cent from last year, compared with a 3.2-percent increase in the first half of the year.

Shen rejected speculation that the decline in FDI was related to China's ongoing anti-monopoly probe into foreign-funded companies.

"Groundless speculation is completely unnecessary," Shen said.

According to MOC, China's FDI in the January-July period mainly flowed into the service sector, which attracted USD 39.72 billion or 55.8 percent of the total during the period.

The FDI into the manufacturing sector in the January-July period fell USD 14.26 percent to 25.2 billion or 35.4 percent of the total.

The top overseas investors were Hong Kong, Taiwan, Singapore, South Korea, Japan, the US, Germany, France and the Netherlands, according to MOC.

Collectively, they contributed 93.9 per cent of the total.

However, Japanese investors cut investment by 45.4 percent from previous year to USD 2.83 billion period as tension over disputed islands threatened to unsettle their relations.

On the other hand, the outbound direct investment (ODI) by Chinese non-financial companies increased 84.9 percent from previous year to USD 9.21 billion in July, compared with a year-on-year decline of 5 percent in the January-June period.

The July ODI figure marked the first monthly growth since February this year, said Shen. China's ODI last year amounted to over USD 90 billion.

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