This paper attempts to incorporate foreign departments into the dynamic game model of central government and local government to examine the theoretical mechanism of financial decentralization by foreign financial capital and foreign-funded enterprises. By using the provincial panel data of China from 2005 to 2016, as well as GMM model and spatial econometric model, this paper empirically examines the impact of foreign financial capital and foreign-funded enterprises on China’s financial decentralization. The results show that the increase of the scale of overseas financial capital will significantly improve the level of financial decentralization in China;the entry of foreign-funded enterprises will have an obvious crowding-out effect on domestic-funded enterprises, thus strengthening the motivation of local governments to intervene in the allocation of financial resources, and ultimately promoting the development of financial decentralization in China. Therefore, we should adhere to the principle of openness and prudence in the financial industry. At the same time, we should strengthen the independent innovation of domestic enterprises, strengthen the construction of financial availability, gradually reduce the dependence on foreign investment, and avoid the adverse impact of foreign investment on macroeconomic stability and financial development in China.