Relationship Between Environmental Regulations and Global Value Chains in Chinese Manufacturing

While active participation in GVCs can stimulate economic growth, it has also been noted to exacerbate environmental pollution. To address environmental concerns, most countries have strengthened environmental regulations, which in turn may affect the positioning of countries within GVCs. This study empirically analyzes the impact of environmental regulations imposed by the Chinese government on the positioning of the manufacturing sector within GVCs of Chinese manufacturing industries from 2006 to 2018.The findings of the research are as follows: Firstly, the strengthening of environmental regulations has an inverted U-shaped impact on the overall GVC position of Chinese manufacturing sector, demonstrating the combined effects of cost effect and innovation compensation effect. Specifically, when environmental regulations are lower than a certain level, strengthening regulations shifts the GVC position upstream. However, when regulations are more stringent than the level, further strengthening them leads to a downstream shift in GVC position. Secondly, it seems that China's current level of environmental regulation is below the apex of the inverted U-shaped curve, and therefore, it is anticipated that further strengthening of environmental regulations in China will result in a further upstream shift in the GVC position. Thirdly, these analytical results are particularly applicable to technology-intensive industries.