AbstractThis paper studies FDI spatial spillovers in China. Empirical investigation reveals that, along the spatial dimension, FDI presence tends to generate negative intraregional spillovers that dominate other potential positive externalities. The direction, magnitude and scope of inter‐regional spillovers vary, depending on the spillover channels. Our empirical findings call for a rethinking of policy‐driven agglomeration among indigenous firms and MNEs in developing countries.