Abstract: Environmental regulations affect region and country’s economic performance through two mechanisms. On one hand, they affect corporations’ cost and revenue directly; on the other, they lead to the increased effort of corporations in improving the quality of environment and building the image of fulfilling environmental responsibility. The paper carries out empirical analysis of panel data of China’s 30 provinces from 1997 to 2010, finding that environmental regulation has not significant relation with economic growth in the country level, but in the region level, the results are different. Environmental regulation and economic growth follows an inverted U-shaped curve in Eastern regions while the relations are U-shaped in Central regions. Though the relations are U-shaped in the legislative level in Western regions as well, the influence fails in the process of execution because of the pursuit of short-term economic interests. Moreover, regulation policy instruments can improve economy indirectly by restricting the emission of pollutants and waste of resources.