Title: Economic policy uncertainty in China since 1949: The view from mainland newspapers
Authors: Steve Davis - University of Chicago (United States)
Xuguang Simon Sheng - American University (United States) [presenting]
Dingqian Liu - American University (United States)
Abstract: The economic policy uncertainty (EPU) in China since 1949 is quantified as filtered through the lens of two leading mainland newspapers. We use scaled frequency counts of newspaper articles that contain selected terms to quantify EPU. We rely on natural language processing tools to help select policy-relevant terms. Our evidence suggests that mainland newspapers yield a reasonable proxy for EPU in China since the mid-1990s and possibly earlier. Our index is highly elevated during the Korean War, rises sharply in 1979 amidst tensions over market-based reforms and responds to many other domestic and foreign developments that include Ronald Reagan's election as U.S. President in 1980, political battles over the role of market forces in 1986-1987, German reunification in 1990, the Global Financial Crisis of 2008-2009, and, especially, rising trade policy tensions in 2017-2018. In VAR models fit data since 1992, surprise increases in our EPU index foreshadow deteriorations in Chinas economic performance. Our trade policy uncertainty index for China skyrockets in 2018. Contemporaneously, Chinese firms with high sales to the U.S. saw large negative equity returns and large increases in return volatilities relative to other Chinese firms.