A Game Model is built to prove that OFDI is an endogenous factor to upgrade international competitive advantage of the equipment manufacturing industry. Then the mechanism of OFDI enhancing the international competitive advantage of the equipment manufacturing industry is explored. The method of Panel GMM is used to demonstrate the mechanism for an empirical study. The results show that OFDI can upgrade international competitive advantage of the equipment manufacturing industry by enhancing the production efficiency, upgrading the matching degree of domestic and foreign demand, expanding the industrial openness and enhancing collaborative degree of related industries.