Government-Led Servitization and Sustainable Manufacturing: Evidence from the Service-Oriented Manufacturing Demonstration Policy in China

The Chinese government has promoted intelligent, green, and integrated transformation to advance sustainable manufacturing. Central to this strategy is the Service-Oriented Manufacturing Demonstration (SOMD) policy, which aims to deepen manufacturing-service integration. However, its regional spillovers and transmission mechanisms remain unclear. Using China’s county-level panel data from 2015 to 2023, we exploit the staggered national rollout of the SOMD policy as a quasi-natural experiment, employing a staggered difference-in-differences (DID) design. We find that the policy significantly increases both the number and share of new manufacturing firms among total business entries by fostering diversified agglomeration of producer services and reducing manufacturers’ operational costs. This effect is highly context-dependent and occurs only when new producer service firms constitute 60% to 98% of all new service entrants. Moreover, we identify a sustainability trade-off, as it stimulates regional economic activity through manufacturing entry but suppresses overall business formation. These findings suggest that achieving balanced sustainable manufacturing requires moving beyond narrow sectoral growth targets toward fostering an integrated industrial ecosystem that strengthens both manufacturing resilience and service-sector dynamism.