Regional competition, rural pollution haven and environmental injustice in China

Under intense fiscal pressure, China's local governments raced against each other to offer business-friendly policies to mobile industries. Lax environmental enforcement was widely adopted across the country and many poor regions became havens for polluting factories. We argue that this adverse effect went deeper than the interjurisdictional competition argument. Within each jurisdiction, urban and rural communities engaged in a similar rivalry. Local governments, facing stronger societal environmental pressure from urban communities, prioritized urban environment and allocated fewer administrative resources to rural environment enforcement. As a result, polluting enterprises found refuge in the rural part of these jurisdictions. We merge a national firm registry database with a national survey of polluting enterprises firms and find strong evidence supporting this hypothesis. Our research extends the scope of the pollution haven hypothesis from an inter-jurisdictional dimension to the urban-rural divide, a source of environmental injustice that is understudied in the literature. Our study of firm location choices also complements current researches on Chinese rural pollution by highlighting the political and economic causes of pollution. •Regional competition for investments pushes Chinese local governments to relax environmental regulations.•Rural communities are particularly vulnerable to this pressure.•We find that polluting enterprises concentrate in rural areas and face lower probability of termination.•Heavy polluting enterprises in rural areas emit more pollutants than urban ones.•These pollution havens lose their appeals as the central government tightens control.