This paper measures the financial soundness in China in the years of 1996-2013, based on analyzing the distribution characteristics listing Corporation’s distance to insolvency, and distinguishes the different status of the financial soundness by the Markov regime switching model. Analysis results show that, the financial soundness index measured in this paper contains future macroeconomic information, and its transformation from high soundness to low soundness takes about 2-3 years. Furthermore, this paper analyzes the time-varying interactive effects between financial soundness and main macroeconomic variables by structuring the TVP-VAR model. The results show that the impacts of macroeconomic shocks on the financial soundness are relatively stable, while the impacts of the financial soundness changes on macroeconomic target variables have obvious time-varying characteristics, and the "price effect" of financial stability is obviously larger than the "output effect".

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