This paper takes the implementation of state-owned capital management budget system as a natural experiment to realize the "government-capital separation", which is an important direction of depening the reform of state-owned enterprises (SOEs) in the new era of socialism with Chinese characteristics. The paper finds strong evidence of positive impact of this capital management budget system on the investment efficiency of state-owned enterprises. Efficiency improvement is greater in those SOEs with over investment, greater soft budget constraints and in high-intervention area. Furthermore, efficiency has been improved through two mechanisms: Reducing the government's intervention on SOEs and restricting the investment behavior under soft budget constraints. These findings offer strong implications for deepening the reform of SOEs, optimizing the allocation of state-owned capital, and enhance compatibility of public ownership and market economy.