Contradictory to the theoretical proposition, Chinese exporters are overall less productive than non-exporters. This study explores the productivity puzzle of Chinese exporters using a plant level dataset which includes the large industrial firms during the period of 1998–2007. Based on total factor productivity (TFP) estimated by the semi-parametric method proposed in Olley and Pakes, this study confirms productivity puzzle of Chinese exporters. The productivity puzzle however does not remain after controlling for firm locations. This result is robust for different model specifications and productivity measurements. Further analysis indicates that productive firms would favour the domestic market particularly when they can enjoy local protection. Export spillover effects would help less productive firms to enter the international market. Ownership and scale economies however condition the impacts of local protection and spillover effects. This paper suggests that local protection and spillover effects can influence the export decision of Chinese firms, providing a complementary contribution to the related literature.
