Towards Cleaner Production Ecosystem: An Analysis of Embodied Industrial Pollution in International Trade of China’s Processing versus Normal Exports

While promoting economic growth, industrial development is causing serious environmental problems and threatening human health. Studies on pollution transfer through international trade often over-estimate the actual embodied emissions in exports and ignore the industrial pollutants. By designing a non-competitive input-output model which differentiates between processing exports and normal exports, we calculate the embodied domestic and imported industrial emissions in China’s processing and normal exports and imports. We also calculate the balance of embodied emission in trade (BEET) and the pollution terms of trade (PTT), as well as the decomposition of scale, structural, and technical effects on embodied emission in international trade. The results demonstrate that processing exports reduce domestic pollution by importing intermediate inputs; normal exports, on the other hand, have a considerable impact on domestic pollution. Bilateral trade between China and the US has the most detrimental impact on China’s local environment, followed by trade between China and Japan. China’s exports to Japan are more polluting per unit than those to the US and Germany. Technological upgradations and transformation of trade structure have helped to reduce the negative environmental consequences of China-US and China-Japan bilateral trade. Investment in technology and trade policy can lead to a cleaner production ecosystem.