How “Innovation and Domestic Demand” Drive Chinese Firms' Industrial Symbiosis Collaboration: Cost and Transformation Paths

ABSTRACT In the context of challenges such as “low‐end locking” and “high‐end blockage,” exploring the symbiotic integration of China's manufacturing and producer services sectors holds significant implications for achieving value chain leapfrogging. Drawing on symbiosis theory, this study empirically analyzes how the collaboration of “innovation and domestic demand” (IDDC) impacts the symbiotic development in these sectors, using data from Chinese A‐share firms and input–output tables from 2007 to 2022. The research finds that IDDC significantly promotes industrial symbiosis collaboration (ISC), with stronger effects in industry‐university‐research collaboration, non‐labor‐intensive, and highly market‐oriented firms. Mechanism analysis reveals that IDDC enhances ISC mainly through cost optimization and transformation and upgrading. Moreover, the government's role varies across industries: subsidies effectively promote symbiosis in labor‐intensive firms, while tax incentives strengthen tech‐intensive ones but weaken their impact on capital‐intensive firms. Additionally, ISC positively contributes to the value chain upgrading of Chinese enterprises, especially benefiting capital‐and tech‐intensive firms, with a relatively weaker effect on labor‐intensive ones.