Green Finance, Trade-Embodied Carbon, and the Sustainable Transition of China’s Manufacturing Sector: Evidence from Provincial Panel Data

Mitigating trade-embodied carbon is essential for the sustainable, low-carbon transition of China’s manufacturing sector amid increasingly integrated domestic and global production networks. This study measures total trade-embodied carbon, embodied carbon outflows, and embodied carbon exports within a China-embedded global multi-regional input–output framework. Using a panel dataset covering 30 provinces, 15 manufacturing industries, and 7 benchmark years from 2002 to 2020, the study employs high-dimensional fixed-effects models to examine the effect of green finance—defined as finance directed toward environmentally sustainable and low-carbon activities—on trade-embodied carbon. The results show that green finance significantly reduces trade-embodied carbon, with a relatively stronger effect in the domestic trade dimension. Mechanistic analysis indicates that this effect operates through both technological and structural channels. Heterogeneity analysis further suggests that the carbon mitigation effect of green finance is more pronounced in the eastern and central regions and in energy-intensive industries. This study extends the analysis of the environmental effects of green finance from the value-chain trade perspective and provides empirical evidence to advance the low-carbon transition of manufacturing under intertwined domestic and global production networks.