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Chinese government adopted a new environmental program during "Eleventh Five-Year Plan" period. Whether this program can achieve its goal of pollution reduction and quality improvement for exports is of vital importance for China's sustainable development. This paper constructs a quasi-difference-in-difference (DID) framework to identify the effects of the new environmental policy on export product quality by using highly disaggregated trade transaction data at the product level. Empirical results show that the implementation of pollution reduction targets is negatively correlated with export product quality. This negative impact is more profound in western regions, capital-intensive industries, privately owned firms and firms exporting to countries which are not members of Organization for Economic Co-operation and Development group. In addition, our extended analysis shows that the negative effects can be mitigated through product switching within the firms. The major policy implication is that local governments should take proper measures to strengthen the effects of innovation offsets caused by environmental regulation and effectively utilize the induced effects of environmental regulation on product switching. The goal is to achieve a win-win outcome for environmental protection and improvement in export product quality. • Pollution reduction enforcement significantly reduces export product quality. • Innovation can be an offsetting force for this negative impact. • The negative effects can be mitigated through product switching within the firms. • There are variations across regions, sectors and ownership. • Environmental regulation should accommodate these differences. [ABSTRACT FROM AUTHOR]

The rapid growth of foreign investment is a double-edged sword, which not only drives China's rapid economic development, but also aggravates China's energy shortage and environmental pollution. Chinese government has strengthened environmental regulations with the intention of restricting the entry of foreign investment, improving the quality of foreign direct investment (FDI). However, the effect of environmental regulation on the quality of FDI has not been carefully examined yet. This study constructs a panel model and uses the panel data of 30 provinces in China from 2009 to 2018 to scrutinize the effect of different types of environmental regulation policies on the quality of FDI. The results show that the strengthening of environmental regulation policies can improve the quality of FDI and avoid making China a "pollution paradise" for FDI. There are significant differences in the effects of different types of such policies on the quality of FDI; the type of administrative supervision and social participation policies play positive roles in improving the quality of FDI. There are also significant differences in the strategies for attracting foreign investment among different regions, as well as in the focuses of their environmental regulation objectives. Therefore, for environmental regulation policies to play a more positive role in promoting the quality of FDI and the high-quality development of the national economy, this study suggests that it is necessary to further implement the policy of opening up to the outside world, optimise foreign investment structures, deepen opening up to the outside world, optimise the structure of foreign investment, deepen the reform of the environmental supervision structure, tighten the law enforcement of environmental protection, seek accurate environmental regulation based on the realities of regional foreign investment development, take multiple measures to improve the business environment to promote the quality and efficiency of foreign investment, and so on. Image 1 • Strict environmental regulation policy can improve the unit scale and unit benefit of FDI. • Distinguish and test the potential effects of different types of environmental policy tools on the quality of FDI. • Administrative supervision policy and social participation policy can improve the quality of FDI more effectively. • Sustained improvement of FDI quality depends on coordinated advances in economic, political, and environmental reforms. [ABSTRACT FROM AUTHOR]