Catching the political leader's signal: Economic policy uncertainty and firm investment in China*

This study uses a text dataset of the Chinese President's speeches and reports from November 2012 to December 2021 to construct an original economic policy uncertainty (EPU) index: President Xi Jinping's EPU (XiEPU). XiEPU moderately correlates with a previous study's representative EPU, showing notably different peaks. Our index spiked in April 2016 and January 2017. Using firm-level panel data from 2012 to 2019, we find that a higher value of XiEPU is associated with a lower investment rate at the quarterly level. Moreover, there are noteworthy heterogeneous effects among firms and periods. Specifically, we find a stronger effect of XiEPU on manufacturing sectors, a weaker effect on state-owned enterprises, and a stronger effect in the second term of Xi Jinping's presidential tenure after November 2017.

Automated summary

This study constructs an original economic policy uncertainty (EPU) index, called XiEPU, using a text dataset of the Chinese President's speeches and reports. It finds that XiEPU moderately correlates with a previous study's representative EPU but exhibits notably different peaks, with spikes in April 2016 and January 2017. Panel data analysis of firm-level data from 2012 to 2019 reveals that a higher value of XiEPU is associated with a lower investment rate at the quarterly level, with heterogeneous effects observed among firms and periods.