China's foreign direct investment (FDI) fell sharply in July amid tightening supervision over inflow of hot money, or short-term speculative capital, that might have accelerated during the past few months.

The Ministry of Commerce said the FDI flowing into China shrank by 35.7 percent from a year earlier, to $5.36 billion last month, compared with a 6.8-percent dip in June. This is also the 10th-straight monthly drop since last October.

"This (sharper decline) is partly due to enhanced supervision and management efforts by the Chinese government, which has noticed the possibility that more hot money is flowing into China," said Zhang Xiaojing, director of the Macro-economy Department of the Chinese Academy of Social Sciences (CASS).