Financialization of the economy is a widespread phenomenon of capital flowing between industries and the financial sector in China. This paper focuses on the relationship between financialization and future core business performance in Chinese listed companies that have been deeply involved in financialization activities over the past decades. It is shown that financialization quickly drags down the future core business performance of enterprises; this is evidenced by the crowding-out effect experienced by listed companies in China during the sample period. The financialization of enterprises has reduced their support for research and development expenditures and the number of patent applications and grants, which reduces a company's core business growth potential and limits its future profitability. In order for the Chinese market to benefit as expected from the reservoir effect, China needs to guard against the excessive financialization of real enterprises. In the current stage of enterprise development, a high level of internal control can effectively alleviate financialization's crowding-out effect, and a good macroeconomic environment is guaranteed to reduce the motivation of enterprise financialization as well as slow the financialization process.
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