Advanced manufacturing represents the developmental direction of the manufacturing industry. Currently, China is committed to accelerating its industrial modernization process, with a focus on cultivating and developing advanced manufacturing clusters to drive the transformation and upgrading of the manufacturing sector toward high-end, intelligent, and green development. This study employs a sample dataset constructed by matching the CSMAR and the Chinese industrial enterprise registration database from 2009 to 2021. From the perspective of “stabilizing foreign investment” (SFI), we systematically investigate its impact on the value chain upgrading of Chinese manufacturing enterprises and the underlying mechanisms. The findings reveal that SFI significantly promotes value chain upgrading in China’s manufacturing sector, and this conclusion remains robust after addressing endogeneity concerns and conducting robustness tests. The mechanism analysis indicates that this eff ect primarily stems from SFI’s technological innovation eff ect and the diversifi cation eff ect of supply networks. Notably, SFI exerts a stronger upgrading impetus for enterprises with higher management effi ciency, those in monopolistic industries, and fi rms in eastern regions. Furthermore, SFI demonstrated a more pronounced role in driving value chain upgrading before the COVID-19 pandemic, while attracting new foreigninvested enterprises remains a critical factor in propelling manufacturing fi rms toward the high end of the value chain. Finally, this paper analyzes the external conditions and macroeconomic eff ects of SFI. The results show that an integrated national market enhances SFI’s positive impact on value chain upgrading. Additionally, SFI contributes to the overall upgrading of China’s macro-industrial structure, with industrial rationalization playing a more substantial mediating role. This research provides important policy insights for optimizing China’s SFI strategy and advancing the high-end transformation of its manufacturing sector.