China’s Pilot Free Trade Zones and Company’s Sustainability Performance

Abstract

This paper investigates the role of pilot free trade zones (FTZs) as a policy testing terrace for achieving the sustainable development goals in China. Using a sample of data from Chinese companies that were listed in Shanghai and Shenzhen A stocks, from 2009 to 2021, a difference-in-difference model is employed to assess the impact of FTZ establishment on sustainable development. The findings indicate that establishing FTZs significantly enhances a company’s sustainability performance, particularly in terms of environmental and social responsibility performance. They also foster an innovation-friendly environment, facilitating sustainable development goals in both institutional and innovation domains. Furthermore, the policy effects of FTZs exhibit a mixed picture, involving both a curse effect of political resources and a reinforcement effect of environmental protection goals. Additionally, the Matthew effect and spillover effect are observed in FTZs. Finally, this paper explores the linkages between FTZ construction and China’s “dual circulation” development pattern, revealing the effective role of FTZs in conjunction with new energy model cities for enhancing sustainable development. However, the linkage between FTZs and the Belt and Road Initiative is currently limited in terms of positively impacting a company’s sustainability performance.