Evaluations of policy contagion for new energy vehicle industry in China

Abstract

This paper investigates the impact of eight new energy vehicle (NEV) policies in China from 2016 to 2021 on the stock indices of its 10 major up-, mid-, and downstream sectors. Contagion tests based on changes in either individual linear/asymmetric or joint asymmetric dependence are applied to identify how policy shocks affect relevant sectors. These tests are also used to measure the extent to which policy is important in driving the policy shocks by measuring the sensitivity index of policy announcements and using network analysis. The empirical results show that China's NEV policies, including financial subsidies, tax exemption, dual credit schemes, and long-term development plan and management notice, have significant effects on its main industry chains and affiliated sectors through linear and joint asymmetric dependence channels. Of the eight policies, the long-term development plan and financial subsidies are found to be the most effective instruments in driving policy contagion more through asymmetric dependence than linear dependence channels, while tax incentives and management notices have the least effect. The up-, mid-, and downstream sectors of NEVs are more affected by NEV policy shocks than their affiliated sectors.