Abstract: The dual circulation interactive transformation mechanism of domestic and foreign markets and the 

market-based asset reallocation mechanism are the key issues to test whether China's manufacturing industry ha-s the resilience and market effectiveness to adapt to the domestic and foreign market shocks in the new era. Bas-ed on the data of China's manufacturing listed companies from 2004 to 2020, this paper constructs the demand t-ransformation equation, the incremental equation and the stock equation of asset allocation, and makes an empi-rical test on the process of demand transformation and asset reallocation under the impact of foreign demand. 

The results show that under the impact of shrinking foreign demand, the transformation ability of foreign dema-nd to domestic demand is limited, while domestic demand does not effectively promote the asset reallocation of enterprises. At the same time, the expansion impact and contraction impact of foreign demand have significant asymmetry on the mechanism of asset reallocation. The above research results show that although the contraction of external demand can stimulate the market potential of domestic demand, the ability to resolve it is limited. Th-erefore, we should take into account the domestic and foreign markets, and reshape the external circulation thr-ough internal circulation. Relying on market forces can not fully and effectively promote asset reallocation, so industrial policy should be taken as an important supplement to the failure of market mechanism.

Key words: External Demand Shock; Demand Transformation；Asset Reallocation; Dual Circulation