China topped the medal table when Beijing hosted the 2008 Games before dropping to second in London (2012) and third in Rio de Janeiro last year.
In an "unprecedented reform", the country's sports governing body had invited athletes based overseas to compete in the 13th National Games from Aug. 27 to Sept. 8, the report said.
"We decided to invite high-level athletes from the Chinese diaspora to take part in the all the 26 competitive sports events of the National Games," Li Yingchuan, vice minister of China's State General Administration of Sport, said.
Liu Xiaonong, director of the Competitive Sports Department, said the athletes must prove they were competitive.
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"If we spot talent among the overseas Chinese athletes, and if they have Chinese citizenship, we will possibly recruit them in preparation for the 2020 Olympic Games," Liu said.
China has established an ice hockey team comprising overseas Chinese in Vancouver as it seeks to improve its Winter Olympics performance ahead of the 2022 Games in Beijing.
"We formed this team to help out national team train and to compete with them regularly, so as to improve our players' level of competency," minister Li said.
(Reporting by Amlan Chakraborty in New Delhi; Editing by John O'Brien)
