Abstract: At present, the corporatization of local governments, the segmentation of local markets and political rent seeking are outstanding problems in government’s economic management system. They are also important factors influencing foreign funds demand preference in China. An empirical analysis shows that there is negative correlation and causation between the deficiencies of government’s economic management system and foreign funds demand preference. Hence, to change the government achievement evaluating and appraising system of local governments and to legally regulate the government’s economic management function is an effective way to reduce the foreign funds demand preference so as to enhance the quality of utilizing foreign funds.

Key words: government&rsquo, s economic management system, foreign funds demand preference, corporatization of local governments, segmentation of local markets, political rent seeking