Carbon Intensity and Green Transition in the Chinese Manufacturing Industry

Abstract

The carbon emissions in China contribute to around one-third of the world total. Therefore, China plays a critical role in global carbon emissions reduction. Over the last few years, the Chinese government has implemented a range of counter-measures to accelerate the green transition. In this research, we empirically investigate the relationship between carbon intensity and the green transition. Based on provincial panel data of Chinese manufacturing industries from 2008 to 2019, we measure the relationship between carbon intensity and green transition capacity in 30 provinces, employing the Generalized Method of Moments (GMM) to examine their influencing mechanism and regional heterogeneity. Furthermore, we use an intermediary model to investigate the influence of financial development on the relationship between carbon intensity and manufacturing green transition. We find that a U-shaped relationship exists, where increasing carbon emissions restrain the green transition initially but improve it later, such that the transition upgrades gradually. Regarding the regional heterogeneity, the GMM results show that carbon intensity has the most significant impact on the green transition in the central provinces, followed by western provinces. Meanwhile, financial performance is an essential contributor to the relationship, as more funds flow into contamination-dominated but profitable projects, thus inhibiting the transition. Urbanization and marketization are also included into threshold models, which suggest the existence of relevant threshold effects in the relationship. These findings have a referenced value suggesting that the local governments follow the U-shaped theory to reform the local carbon reduction policies and green development target according to the regional economic performance and geographical advantages.