Abstract: An oligopoly output competition model is developed including both the multinational enterprises and host state enterprises to analyze how the cost factors affect the location choice and FDI withdrawal in the host state. The influence of location choice on FDI involves not only the economic agglomeration but also the cost factors. When the economic agglomeration effect is the same, the cost factors play an important role in location choice. For the region to be chosen, the more advantageous the cost, the stronger the attraction to FDI and the more the FDI enterprises gathering there. When the location cost is too high, FDI that is so sensitive to the variation of cost will withdraw from the FDI gathering area. Today China should provide some appropriate regions in its mid-west part as soon as possible as the new centers to adapt the FDI transfer instead of FDI withdrawal.