China goes green

For decades, China’s ascent to become the world’s second-largest economy was powered by coal-fired energy, steel mills, and chemical plants. The environmental toll grew increasingly visible. In 2016, Beijing launched one of its most sweeping regulatory interventions, the centralised Environmental Protection Inspection (EPI) programme. This would dispatch inspection teams to scrutinise the activities of local governments and major polluters.

Research in the International Journal of Environment and Pollution suggests that the programme has done more than curb emissions. It has improved what economists call green total factor productivity (GTFP) among some of the country’s heaviest polluters.

Traditional productivity measures assess how efficiently companies turn inputs such as labour and capital into output. They ignore pollution generated in the process. GTFP adjusts for this by counting emissions and other environmental damage as undesirable outputs. In effect, it measures not only how much a firm produces but also how cleanly it does so. A rise in GTFP means a company is generating more economic value for the same environmental cost or maintaining output while reducing pollution.

The research analysed almost a decade’s worth of data from Chinese A-share listed companies across heavily polluting industries. The researchers tracked changes over time using specialist efficiency models, which incorporated environmental factors into their productivity calculations. They then used statistics to compare firms subject to inspections with those that were not, before and after the introduction of the policy. This approach would isolate the effect of the inspections from other economic trends.

The results show a statistically significant increase in GTFP among heavily polluting enterprises following the inspections. Importantly, the gains do not appear to stem primarily from temporary production cuts to meet emissions targets. Instead, the evidence points to increased green technological innovation. Firms invested in cleaner technologies, energy-efficiency upgrades, and process improvements that reduced their environmental footprint in the long term.

Gu, Y., and Liu, C. (2026) ‘Empowering sustainable growth: the transformative impact of environmental protection inspections on heavy polluters’, Int. J. Environment and Pollution, Vol. 76, Nos. 1/2, pp.40–56.