Was Economic Growth in China Environmentally Friendly? A Case Study of the Chinese Manufacturing Sector

In the past several years, the Chinese government has been pursuing “green” economic growth. This is an issue of policy making because undesirable outputs (e.g., pollution) are unavoidable during the production process. The existence of undesirable outputs complicates the analysis of firms’ behavior. This paper adopts Kuosmanen’s (2005) production frontier to study whether the government’s policy objective has been realized in the past decade. Incorporating both desirable and undesirable outputs in the study of 294 cities from 2003 to 2014 in China, the “true” picture of the productive performance of these cities is uncovered. First, the manufacturing sector was highly environmental inefficient in 2003. It became more environmentally friendly over time but was stagnant after 2010. In contrast, the sector was also very technically inefficient in the production of desirable goods but was improving over the whole studied period. Second, the gap between environmentally friendly and unfriendly cities, in desirable and undesirable goods, has been narrowing over time. Third, eastern provinces were more environmentally friendly and western provinces were lagging behind during 2003–2014. The western provinces were outperformed by other provinces over time. In conclusion, although the Chinese government has done much to improve environmental protection, our results show that more has to be done.