diff --git a/hg b/hg
--- a/hg
+++ b/hg
@@ -28,15 +28,17 @@
 
 # enable importing on demand to reduce startup time
 try:
-    if sys.version_info[0] < 3 or sys.version_info >= (3, 6):
+    # chg pre-imports modules so do not enable demandimport for it
+    if ('CHGINTERNALMARK' not in os.environ
+        and (sys.version_info[0] < 3 or sys.version_info >= (3, 6))):
         import hgdemandimport; hgdemandimport.enable()
+    import mercurial.util
 except ImportError:
     sys.stderr.write("abort: couldn't find mercurial libraries in [%s]\n" %
                      ' '.join(sys.path))
     sys.stderr.write("(check your install and PYTHONPATH)\n")
     sys.exit(-1)
 
-import mercurial.util
 import mercurial.dispatch
 
 for fp in (sys.stdin, sys.stdout, sys.stderr):
diff --git a/mercurial/chgserver.py b/mercurial/chgserver.py
--- a/mercurial/chgserver.py
+++ b/mercurial/chgserver.py
@@ -565,8 +565,11 @@
                             self._hashstate, self._baseaddress)
 
 def chgunixservice(ui, repo, opts):
-    # CHGINTERNALMARK is temporarily set by chg client to detect if chg will
-    # start another chg. drop it to avoid possible side effects.
+    # CHGINTERNALMARK is set by chg client. It is an indication of things are
+    # started by chg so other code can do things accordingly, like disabling
+    # demandimport or detecting chg client started by chg client. When executed
+    # here, CHGINTERNALMARK is no longer useful and hence dropped to make
+    # environ cleaner.
     if 'CHGINTERNALMARK' in encoding.environ:
         del encoding.environ['CHGINTERNALMARK']