Abstract: Since the late 20th Century, the hotspots of international direct investment have transferred from manufacturing industries to service industries. The development of service international direct investment became the motor of global direct investment. As a result, the locational choice of service international direct investment has acted as a popular topic of economical geography. After thirty years' reforming and opening up, Chinese is now a major destination of international direct investment. The structure of international direct investment in China has also changed because of more critical policies and variable environments. Recently, the tertiary industries are attracting more and more foreign direct investment. However, there are little literatures about the location choice theories of foreign direct investment in the tertiary industries. The empirical literatures are even less. Real estate is one of the major industries that foreign direct investment focuses on. We hold the real estate industry as an example to study the location choice of foreign direct investment in Chinese tertiary industries. Special intention is paid to the interaction of foreign direct investment and domestic investment, especially the exclusion impact of domestic investment. Empirical study of the location choices of real estate foreign direct investment during 2006-2011 shows that although foreign real estate investment concentrates in the metropolises along the eastern seashore, it shows a trend to shift to the big cities in the inner land, especially to those cities locates along the Yangtze River. Compared to foreign direct investment from other regions and countries, foreign direct investment from Hong Kong, Macao and Taiwan spreads more widely in the inner land. The study uses a panel Tobit model to declare that intensive competitions from domestic real estate firms and disadvantages of outsiders make foreign firms to give up the optimized locations, where the profit rate is highest. Compared to foreign real estate forms, domestic real estate firms are much more familiar with the real estate market so that they deal with little uncertainty and risk. What's more, the regulations of domestic real estate firms are looser, and they may enjoy more flexible company frameworks and investment destinations. As a consequence, the domestic real estate firms have more market power than foreign real estate firms. The domestic real estate firms could occupy the optimal locations, known as "the first line cities" including Bejing, Shanghai and Guangzhou. Foreign firms move to suboptimal locations, where the market scale is large and the profit rate isn't highest, ensuring that they can increase the total sum of profit. Such cities are called "the secondary line cities", including cities located along the Yangtze River and capitals of eastern and central provinces. Because the levels of marketization of land in different cities increased rapidly in the past six years, foreign firms can chose locations without the restriction of land institutions. Additional analyses about the newly built-up foreign and domestic real estate firms indicate that the trend to transfer from "the first line cities" to "the secondary line cities" exists in both foreign and domestic firms.

Key words: China, Foreign Direct Investment(FDI), institution, location, market, real estate