The “shift from the real to the virtual” of the real economy is a major practical problem faced during China’s economic transformation. The legalization of government budgets, as a fundamental characteristic of the modern fiscal and taxation system, is an important external institutional factor influencing enterprises’ business behaviors. The governance effect of the implementation of the new Budget Law is profoundly changing the external environment of manufacturing enterprises and affecting their investment decisions. However, there are few studies exploring the governance mechanism of the “shift from the real to the virtual” of enterprises from the perspective of the legalization of government budgets. This paper selects listed manufacturing enterprises on the Shenzhen and Shanghai A-share markets from 2009 to 2022 as the research sample. Taking the implementation of the new Budget Law in 2015 as a quasi-natural experiment, it constructs an intensity difference-in-differences model to examine the impact of the implementation of the new Budget Law on the financialization of manufacturing enterprises. The study finds that the implementation of the new Budget Law significantly reduces the degree of financialization of manufacturing enterprises, and this conclusion remains robust after treatments such as replacing the variable measurement method, PSM-DID, omitted variable test, and excluding other relevant alternative explanations. The mechanism test shows that the implementation of the new Budget Law reduces the degree of local governments’ intervention in the allocation of market financial resources through the “fund guarantee mechanism”, weakening the demand of manufacturing enterprises for financialization out of preventive motives; and promotes the improvement of the return on real investment of manufacturing enterprises through the “income incentive mechanism”, suppressing their demand for financialization out of profit-seeking motives. The heterogeneity analysis shows that the governance effect of the implementation of the new Budget Law on the “shift from the real to the virtual” of manufacturing enterprises is more prominent in enterprises with higher internal governance levels, more intense market competition, and those located in regions with higher fiscal pressure and stricter national audit supervision. Compared with existing studies, this paper makes contributions in two aspects: First, from the new perspective of the legalization of government budgets and based on the policy practice of the implementation of the new Budget Law, it evaluates the impact of the new Budget Law on the financialization of manufacturing enterprises, enriching the research on the economic consequences of the implementation of the new Budget Law. Second, it reveals two internal mechanisms through which the implementation of the new Budget Law exerts a governance effect on the “shift from the real to the virtual” of manufacturing enterprises, namely the “fund guarantee mechanism” and the “income incentive mechanism”, providing a path reference for the governance of the “shift from the real to the virtual” of enterprises. This paper reveals the internal logic of the governance effect of the implementation of the new Budget Law on the “shift from the real to the virtual” of manufacturing enterprises, providing useful references for the governance of the “shift from the real to the virtual” of the real economy. Local governments should strictly abide by the provisions of the new Budget Law to restrain their own behaviors, standardize the boundaries between the government and the market, and avoid misallocation of factors such as the “shift from the real to the virtual” of manufacturing enterprises caused by the “overstepping” of local governments. They should also gradually establish a medium- and long- term budget information disclosure mechanism, strengthen budget disclosure, and continuously enhance the governance effect of the legalization of government budgets on the “shift from the real to the virtual” of manufacturing enterprises.