Abstract: Central environmental regulation policies, supervised by local governments and implemented by enterprises, are intended to enable polluting enterprises to reduce emissions and innovate. This study takes the “11th Five-Year Plan” for energy-saving and emissions-reduction as a natural experiment, with clean enterprises as the control group and polluters as the experimental group, to theoretically analyze and empirically test the impact of central environmental regulation policies on total factor productivity of polluting enterprises through pollution reduction effect and innovation effect from the perspective of strategic behaviors of local governments and enterprises. Results are as follows. (1) Central environmental regulation motivates local governments to provide government subsidies and financing facilities to clean enterprises. Polluting enterprises will adopt threatening strategies such as output reduction, relocation, product conversion and withdrawal from the market, forcing local governments to provide government subsidies and financing facilities for technological innovation and pollution control. (2) Compared with clean enterprises, on the one hand, the total factor productivity of polluting enterprises decreases due to the increase of pollution control costs, and on the other hand, the total factor productivity is improved due to the financing loans used for R&D and innovation to produce more new products. Finally, the impact of central environmental regulation on the total factor productivity of polluting enterprises is not significant. (3) Heterogeneity test shows that central environmental regulation only improves the total factor productivity of state-owned polluting enterprises, but reduces the total factor productivity of polluting enterprises in central China.