This study investigated how manufacturing plants reacted to inspections conducted by environmental authorities under pollution taxation regulations in China. Contrary to similar studies in the US, Canada (Magat and Viscusi, 1990; Laplante and Rilstone, 1996) and even China (Dasgupta et al. 2001), we found that inspections significantly increased the level of verified pollution emissions. This finding has important policy implications in showing that inspections by environmental authorities in China are effective in verifying self-reported pollution levels in industries, but not on lowering such levels. In order to really control pollution, a reform of the existing law is necessary.