Overseas companies invested $7.58 billion in factories and other projects in China last month, the commerce ministry announced on Thursday. This is a 8.7% decline.
For the first seven months of the year, FDI fell 3.6% on year to $66.67 billion.
The July result represents the worst fall since December and continues a downward trend that goes back to November, with the exception of May, when it eked out a marginal gain of 0.05 percent.
"The slowdown in world economic growth, increasing uncertainties and a lack of proper solution to the European debt crisis" were external factors contributing to the decline, said ministry spokesman Shen Danyang.
He also cited volatility in global financial markets as well as the U.S. government's call for boosting the country's manufacturing sector and encouraging investment domestically as causes for the decline.
Also, emerging economies such as India, Brazil and Russia were "becoming new hot spots for multinational companies," he said.
Within China, tight land supply, rising labor costs and still suppressed domestic demand have impaired the Asian giant's appeal to foreign investors, Shen said.
But the country will remain competitive "in the long run" thanks to the government's stimulus efforts to boost growth, a stable political outlook and improving legal system, he added.
Growth in China, the world's second-largest economy, has slowed for six consecutive quarters and expanded 7.6% in the three months ended June 30, its worst performance in three years.
The government said last week that exports and imports both decreased in July as the country's trade conditions deteriorated.
Shen said: "We expect foreign trade in the second half of the year will face a more severe environment."
Still, Premier Wen Jiabao has expressed confidence that China will be able to meet its targets for this year, including growth of at least 7.5%, the official Xinhua news agency reported Wednesday.
"We have the conditions and the ability to definitely meet this year's economic and social targets," he said.
China's economy grew 9.2% in 2011 and 10.4% in 2010.
The International Monetary Fund last month forecast China's economy would rebound in the second half of 2012 to expand 8% annually as government policies to spur growth take effect.
Authorities have cut interest rates and lowered reserve requirements for banks in a bid to spur lending to help bolster the economy. Recent poor economic data have increased speculation they may carry out more loosening steps.
Copyright Agence France-Presse 2012