This paper focuses on the direction and channels of FDI on China’s domestic firms’ export quality. We find that China’s domestic firms’ export quality is degrading while the foreign firms’ export quality is upgrading. FDI degrades the domestic firms’ quality through technical efficiency, R&D efficiency, market competition and consumers’ subjective preference. FDI upgrades the domestic firms’ quality through advertising efficiency and relaxing finance constraint. The extensive margin of FDI upgrades quality while the intensive margin of FDI degrades domestic firms’ quality. However, the negative effects overtakes the positive effects, therefore FDI degrades China’s domestic firms’ product quality in general.