The purpose of this paper is to empirically analyze economic and policy factors affecting pollution by Township and Village Industrial Enterprises (TVIEs) in China and to discuss problems and directions in environmental policies for them. With the rapid growth of TVIEs since the early 1980s, pollution has been spreading into the rural areas. The large number and small size of TVIEs makes it difficult for TVIEs themselves and the government to implement environmental measures. The econometric analyses with the provincial data of National Survey of Pollution by TVIEs (NSPT) show that COD (Chemical Oxygen Demand) intensity is decreased by investment in wastewater treatment facilities and by more efficient technologies, indicated by higher labor productivity and the fact that investment in wastewater treatment facilities has a significant correlation with the effective rate of water pollution levy. On the other hand, the result of the factory survey clarifies that many TVIEs suffer from a lack of external financial resources to invest in pollution abatement facilities. Local governments should strictly enforce the pollution levy system and other regulations for TVIEs, and at the same time they should make public loans for environmental measures easily accessible to TVIEs and provide environmental education and training for managers and workers at TVIEs.