ABSTRACT This study examines how government subsidies catalyze digital transformation in Chinese manufacturing enterprises during the rapid evolution of the digital economy. Using comprehensive firm‐level data spanning 2012–2022, we find that targeted subsidies significantly accelerate digital transformation initiatives by alleviating financial constraints, particularly among growth‐stage, small‐scale, and private enterprises. The impact exhibits notable heterogeneity across industries and regions, with labor‐intensive sectors and areas with conducive business environments demonstrating more substantial positive effects. Interestingly, in regions already characterized by high digitalization, the effectiveness of subsidies diminishes, suggesting the need for more differentiated policy approaches. Beyond stimulating digital technology adoption, these subsidies serve as stabilizing mechanisms for firms navigating environmental uncertainties. Our findings provide novel microlevel evidence on the transmission mechanisms through which government financial support drives industrial digitalization, contributing to both theoretical understanding and policy design for promoting new‐generation industrialization in transitional economies. Related Articles Wang, Qingzheng. 2025. “Structural and Instrumental Power of Real Estate Companies in China and Government Regulation: The Case of Evergrande.” Politics & Policy 53, no. 3: e70031. https://doi.org/10.1111/polp.70031 . Shen, Y., Ieong, M. U., and Zhu, Z. 2021. “The Function of Expert Involvement in China's Local Policy Making.” Politics & Policy 50, no. 1: 59–76. https://doi.org/10.1111/polp.12450 . Li, W., Pierce, J. J., Chen, F., and Wang, F. 2024. “The Politics of China's Policy Processes: A Comparative Review of the Advocacy Coalition Framework's Applications to Mainland China.” Politics & Policy 52, no. 4: 728–756. https://doi.org/10.1111/polp.12574 .
Lang Wu (Fri,) studied this question.