Thin capitalization is a common means of tax avoidance for multinational corporations, and China’s thin capitalization rule was established in 2008. However, there is little research on the effect of China’s thin capitalization rule on foreign-funded enterprises at present. Based on the data from Chinese manufacturing enterprises database in 2004 -2011, this paper uses difference in difference model to test the impact of the thin capitalization rule on the tax avoidance behavior through thin capitalization of foreign-funded enterprises empirically. The results show that China's thin capitalization rule has effectively reduced the degree of thin capitalization of some foreign-funded enterprises, especially those whose debt-equity ratio is higher than 2, and inhibited the behavior of tax avoidance through thin capitalization of foreign-funded enterprises.Due to the strong tax avoidance motive, the actual tax burden of foreign-funded enterprises is far lower than the statutory tax rate, and the thin capitalization rule has effectively improved the actual tax burden of foreign-funded enterprises, but the tax reduction of foreign-funded enterprises with high degree of thin capitalization is less than that of foreign-funded enterprises with low degree of thin capitalization. At the same time, we also find that the thin capitalization rule has a learning effect on foreign-funded enterprises that fail to meet the regulatory requirements: foreign-funded enterprises whose debt-equity ratio does not exceed the statutory standards will increase their degree of thin capitalization.