This paper try to examine that inward foreign direct investment (FDI) in China affects domestic investment (DI) depends on the level of financial deregulation. Using the panel data, instrumenting FDI with weather indicators (validity supported by over-identification tests), and the limited-information maximum likelihood (LIML) results recommend that both FDI and its relations with financial deregulation have a significant negative effect on DI. It indicates that in China, FDI significantly crowds out DI, and higher level of financial deregulation strengthens the crowding-out effect. Even after controlling for other growth factors, and time and province effects, the results are robust.