["The World Economy, EarlyView. ", "\nABSTRACT\nThe Visa‐Free Transit Policy is a major opening‐up initiative launched by China to eliminate barriers to cross‐border personnel mobility and build an interconnected cross‐border network. Using a sample of China's A‐share listed firms from 2006 to 2019, this paper adopts the Difference‐in‐Differences (DID) model to empirically examine whether the policy can effectively improve the innovation quality of firms in visa‐free transit cities. The results show that the policy significantly improves local firms' innovation quality. It can function via two mediating mechanisms: promoting corporate supply chain diversification and facilitating inter‐firm collaborative innovation. Heterogeneity analysis shows that its innovation‐boosting effect is stronger for three groups of firms: firms in regions with strong intellectual property protection, those in transportation hubs and small and medium‐sized enterprises (SMEs). In addition, the 144‐h visa‐free transit policy also exerts a significant positive effect on corporate innovation quality. However, the limited observation period and confounding effects of prior policies impede the accurate estimation of the policy's net effect.\n"]