From Multi-Channel Catalysis to Selective Diffusion: How China’s Green Factory Program Shapes Peer Environmental Investment

Developing countries face mounting pressure to undertake environmental transformation. At the same time, technological, financial, and institutional constraints complicate policy design, leading many governments to experiment with demonstration-based policies. Much of the research on green-transition policies focuses on firms selected for demonstration programs. This study instead turns attention to non-selected firms and examines how demonstration policies affect them under an asymmetric incentive structure. Selective environmental recognition can influence designated firms and alter the investment decisions of local industry peers, yet the durability of these peer responses remains unclear. This study examines China’s national Green Factory Program using a panel of A-share manufacturing firms from 2014 to 2024. A staggered difference-in-differences design identifies how the first green factory in a city-industry group affects capitalized environmental investment among non-selected peers. The preferred estimate is 0.1596 (p = 0.0015) and remains positive after excluding designated and green-supply-chain firms, while the specification passes joint pre-trend tests. The response occurs primarily on the intensive margin, is concentrated within 30 km, and is strongest in the certification year and the following two years. Cohort and mechanism evidence reveal a temporal transition. Early certifications activated government support, capital-market feedback, supply-chain pressure, and local learning simultaneously. As the program expanded, estimates for the general government-support and average supply-chain channels became less precise, although selected-firm valuation and energy-saving investment remained responsive. Green-factory recognition therefore operates as a multi-channel catalyst at program launch but evolves toward more selective diffusion as certification becomes less scarce.