Springer Nature is making SARS-CoV-2 and COVID-19 research free. View research | View latest news | Sign up for updates

The effect of environmental regulation on capacity utilization in China’s manufacturing industry


How environmental regulations are used to improve manufacturing capacity is crucial to the future development of China’s manufacturing industry from a quality point of view. This paper adopts a dynamic spatial panel model to empirically analyze both the effects of different types of environmental regulation policies on capacity utilization in China’s manufacturing industry and their mechanisms. The results show that China’s manufacturing capacity utilization varies a great deal, with improvements in technical efficiency playing the main role, although with significant regional differences. Both command-and-control and market-incentive environmental regulation are conducive to improvements in manufacturing capacity utilization; market-incentive environmental regulation, however, plays the stronger role. The above mechanisms have certain differences though. Both types of environmental regulations are able to improve manufacturing capacity utilization by improving technical efficiency and equipment utilization but the command-and-control policy tool exerts a greater effect in improving technical efficiency while the market-incentive mechanism has a greater effect in improving equipment utilization.

This is a preview of subscription content, log in to check access.

Fig. 1
Fig. 2


  1. 1.

    The 30 provinces in this article can be divided into three regions: 11 eastern region provinces (province-level municipalities): Beijing, Tianjin, Hebei, Liaoning, Shanghai, Jiangsu, Zhejiang, Fujian, Shandong, Guangdong, and Hainan; eight central region provinces: Heilongjiang, Jilin, Shanxi, Anhui, Jiangxi, Henan, Hubei, and Hunan; 11 western region provinces (autonomous regions and province-level municipalities): Inner Mongolia, Guangxi, Chongqing, Sichuan, Guizhou, Yunnan, Shaanxi, Gansu, Qinghai, Ningxia, and Xinjiang.


  1. Andrea L, Arno P, Hannes W (2011) Environmental regulation and investment: evidence from European industry data. Ecol Econ 70(4):759–770

  2. Barbera AJ, Mcconnell VD (2005) The impact of environmental regulations on industry productivity: direct and indirect effects. J Environ Econ Manag 18(1):50–65

  3. Cheng ZH, Li LS, Liu J (2017) The emissions reduction effect and technical progress effect of environmental regulation policy tools. J Clean Prod 149:191–205

  4. Cheng ZH, Liu J, Li LS (2019) Research on the effects of industrial structure adjustment and technological progress on haze emission reduction. China Soft Sci 1:146–154

  5. Dong MJ, Liang YM, Zhang QZ (2015) Industrial capacity utilization of China: industrial comparisons, regional gap and affecting factors. Econ Res 1:84–98

  6. Galloway E, Johnson EP (2016) Teaching an old dog new tricks: firm learning from environmental regulation. Energy Econ 59:1–10

  7. Gray W (1987) B. the cost of regulation, OSHA, EPA and the productivity slowdown [J]. Am Econ Rev 77(77):998–1006

  8. Han GG (2017) Can environmental regulation enhance production capacity utilization? – empirical research based on panel data of manufacturing industry in China. Financ Res 43(6):66–79

  9. Han GG, Gao TM, Wang LG et al (2011) Research on measurement, volatility and causes of excess production capacity of Chinese manufacturing industries. Econ Res 12:18–31

  10. Jaffe AB, Peterson SR, Portney PR et al (1995) Environmental regulation and the competitiveness of U.S. manufacturing: what does the evidence tell us? J Econ Lit 33(1):132–163

  11. Jiang FT, Geng Q, Lv DG et al (2012) Formation mechanism of regional competition, system distortion and overcapacity. China Industrial Economy 6:44–56

  12. Jie MH, Wang J, Liu DM (2014) Environmental regulation, technological innovation and business performance. NanKai Manag Rev 17(6):106–113

  13. Jorgenson DW, Wilcoxen PJ (1990) Environmental regulation and U.S. economic growth[J]. RAND J Econ 21(2):314–340

  14. Karagiannis R (2015) A system-of-equations two-stage DEA approach for explaining capacity utilization and technical efficiency. Ann Oper Res 227(1):25–43

  15. Li S, Chen G (2013) Environmental regulation and productivity growth -- a case study of APPCL2000. Econ Res 1:17–31

  16. Li Q, Nie R (2010) Environmental regulation and industrial productivity of large and medium-sized enterprises in China. J China Univ Geosci (Soc Sci Ed) 10(4):55–59

  17. Li L, Tao F (2012) Selection of optimal environmental regulation intensity in China’s manufacturing industry -- from the perspective of green total factor productivity. China Industrial Economy 5:70–82

  18. Li B, Peng X, Ouyang MK (2013) Environmental regulation, green total factor productivity and transformation of China’s industrial development mode -- an empirical study based on 36 industrial data. China Ind Econ 4:56–68

  19. Nie PY, Huang L (2013) Is there industrial heterogeneity in the effects of environmental regulation on total factor energy productivity? Ind Econ Res 4:50–58

  20. Sun BW, Fu XY, Ren JL et al (2019) Study on blue dividend effect of environmental regulation. China Environ Sci 39(8):3518–3529

  21. Tian XL (2016) Participation in export and Chinese firms’ capacity utilization. J Int Trade Econ Dev:1–28

  22. Wang Y, Shen N (2016) Environmental regulation and environmental productivity: the case of China. Renew Sust Energ Rev 62:758–766

  23. Wang Y, Li YN, Yu H (2019) The mechanism and effect analysis of environmental regulation on aggregate productivity. World Econ 42(2):97–121

  24. Wen HW (2017) Does Chinese firm outward FDI relieve overcapacity - an empirical study based on Chinese industrial enterprises database. Int Trade Issues 4:108–118

  25. Xie E (2008) Environmental regulation and industrial productivity growth in China. Ind Econ Res 1:19–25

  26. Xuan Y (2019) Factor price distortions, overcapacity in manufacturing industries and backward producer services industries. Econ Perspect 3:91–104

  27. Yang ZB (2016) An analysis of the influencing factors of overcapacity of China’s industrial sectors under the perspective of the biased technical progress. J Quant Tech Econ 33(8):31–47

  28. Yang ZB, Zhang C (2015) Research on the win-win dynamic mechanism of excess capacity and environmental governance -- based on the capacity utilization rate decomposition of production side and consumption side. Contemp Econ Sci 6:42–52

  29. Zhang SH, Jiang WJ (2017) Overcapacity in China: measurement and distribution. Econ Res 52(1):89–102

  30. Zhang C, Yu TS (2012) Can environmental regulation affect industrial concentration?: an experience research. China Popul Resour Environ 22(3):98–103

  31. Zhou X, Feng C (2017) The impact of environmental regulation on fossil energy consumption in China: direct and indirect effects. J Clean Prod 142:3174–3183

Download references


The paper was supported by the National Natural Science Foundation of China (grant no. 71803087) and the Jiangsu Social Science Foundation (grant no. 17EYC010).

Author information

Correspondence to Zhonghua Cheng.

Additional information

Publisher’s note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Responsible editor: Nicholas Apergis



Table 7 Correlation analyses and VIF tests

Rights and permissions

Reprints and Permissions

About this article

Verify currency and authenticity via CrossMark

Cite this article

Cheng, Z., Liu, J., Li, L. et al. The effect of environmental regulation on capacity utilization in China’s manufacturing industry. Environ Sci Pollut Res (2020).

Download citation


  • Environmental regulation
  • Capacity utilization
  • Technical efficiency
  • Equipment utilization
  • Manufacturing