Impact of Environment Regulation on Low-Carbon Competitiveness of Chinese Industries

2. Environment Regulation and Low-Carbon Competitiveness of Chinese Industries WU Yingna (wuyingna@zuel.edu.cn) CHENG Yao Zhongnan University of Economics and Law

3. Research Question Export performance: one of the largest economies and traders Environment quality  We need a complete picture to understand the sustainable development in China, esp. its export performance. What more stringent environment regulation does to industry low-carbon competitiveness? And how does this happen?

4. Theoretical framework • H1 More stringent environment regulation leads to an increased cost (both fixed and variable costs) and weakens the low-carbon competitiveness. • H2 More stringent environment regulation encourages firms to innovate and efficiency is improved, which will compensate the increased cost and even improve the low-carbon competitiveness. • H3 Firms with no sufficient R&D resources may try to improve their efficiency by acquiring technology from outside when faced with more stringent environment regulation.

5. Theoretical framework

6. Theoretical framework • Innovation Compensation Effect • Well-designed environment regulation will lead to innovation in firms, which will compensate the cost generated by stringent regulation. • Altman Model (2001)

7. Theoretical framework • Learning Effect • Firms with no efficient R&D resources will import technology to meet more stringent environment regulation  competitiveness +/- • Learning: technology acquiring  technology integration  technology

8. Empirical Study Environment regulation: Fu Jingyan (2010) Low-Carbon competitiveness: Zheng Yi (2015)

9. Mediating effects: cost, innovation and learning Data: 2001-2009, WIOD , Chinese Year Books (Envirnment, Statistics, Technology, Industry and Energy), UN Comtrade

19. Robust Test

22. Conclusions • When their low-carbon productivity is included in the picture, most Chinese industries become less competitive. • For most Chinese industries, their export competitiveness looks better when assessed by the traditional indexes than the low-carbon competitiveness. • Most Chinese industries have earned their world market performance at the cost of environment.

23. Conclusions Environment regulation in China has a negative impact on its 34 industries’ low-carbon competitiveness we tested. H1 Increased cost contributed about 17.7% of the lost low-carbon competitiveness caused by more stringent environment regulation. H2 Although innovation could compensate about 9.7% of the increased cost caused by the environment regulation, it was far from enough. H3 Learning effect is not significant in the industries we tested. Human capital, industry scale and FDI participation also contribute to the improvement of low-carbon competitiveness.

24. Policy Implications • Properly designed environment regulation will encourage more innovation in firms. • IFDI participation: • IFDI has provided Chinese firms good opportunities to learn clean technology. • IFDI may consider China as a pollution heaven. • As an emerging economy, Chinese industries’ export performance is not helped very much by more stringent environment, and more work needs to be done about environment regulation.

25. Thank you for listening!