China’s trade imbalance is witnessed as the huge export surplus. Some believe that the expansion of domestic demand can decrease exports and so the extent of China’s trade imbalance. This paper studies the impacts of domestic demand on promoting firm exports based on the heterogeneity of firms theoretically and empirically. In theory, the model predicts that as long as trade happens, the increase of domestic market will increase the firm’s exports in quantity and value and such effect will increase with the abating of trade costs. In this paper, we use Chinese industrial firm level data to do the empirical test for the proposition. We first use the Semi-parametric method of Olley and Pakes approach (OP) to estimate the reliable enterprise productivity, then to control for firm productivity level, factor endowments, industry fixed effects, regional fixed effects and ownership effects for the empirical analysis. We find that the expansion of domestic demand greatly promotes the exports. We find that such effect for those industries with scaled economy is even more significant; middle and western regions and state-owned enterprises show higher such effect than the other regions and ownerships. In addition, we use quantile regression technique to find that for larger enterprises, the effect of domestic demand on exporting is more significant.