For Chinese enterprises, which are in a situation of great change that has not been seen in a century, improving capacity utilization is not only an important way to enhance sustainable viability and comprehensive competitiveness, but also the key to optimize the allocation of social resources and improve economic resilience. Especially in recent years, governments have continuously deepened the supply-side structural reform, promoted the “three removal, one reduction and one compensation”, and regarded the “removal of production capacity” as one of the important tasks to achieve high-quality economic development. However, the overcapacity of Chinese enterprises has not been fundamentally solved, which has become a deep-seated problem hindering the sustainable development of China’s economy. Therefore, identifying the key factors affecting the improvement of capacity utilization of Chinese enterprises and exploring the path of optimizing enterprise capacity decision-making are still an important issue worthy of attention.

In recent years, accelerating the regional coordinated development and building a unified domestic market have gradually attracted extensive attention. Governments have successively issued a variety of measures to eliminate local protectionism and market segmentation to promote regional market integration. At the same time, they have accelerated the construction of transportation infrastructure such as high-speed railway and improved the interconnection between different regions. China’s domestic market is undergoing an important transformation from segmentation and fragmentation to integration. In the continuously integrated domestic market, the market space of enterprise products is broader, and the efficiency of resource allocation is improved, which will have an important impact on enterprise capacity decision-making and capacity utilization.

From the perspectives of market demand effect and resource allocation effect, this paper investigates the impact of regional market integration on enterprise capacity utilization, and empirically analyzes the effect by using the micro data of Chinese industrial enterprises. It is found that regional market integration significantly improves the capacity utilization of enterprises. Regional market integration not only improves the market demand of enterprise products, but also promotes the effective supply of factors and the optimal allocation of resources, which has a positive effect on the improvement of enterprise capacity utilization. Enterprises with high tax base and high employment contribution and state-owned enterprises are more sensitive to regional market integration; the effect of regional market integration on the capacity utilization of enterprises in heavy industry sector is also higher than that in light industry sector; regional market integration significantly improves the capacity utilization of enterprises in the central and western regions, while the effect in the eastern region is not significant. This paper not only helps to further enrich the research on the formation mechanism of overcapacity, but also provides useful enlightenment for exploring the path of unblocking the domestic circulation and improving the quality of economic development.