US economic policy uncertainty on Chinese economy: industry level analysis

Abstract

ABSTRACTThis paper uses both Chinese aggregate and dis-aggregate level data to investigate the transmission mechanisms of spillover effects of US economic policy uncertainty on the Chinese macroeconomy activities. We find that different industries of China respond quite differently by using quasi-exogenous variation across industries. More specifically, increasing uncertainty reduces the Chinese stock market return, especially those industries closely connected to the US investors. FDI in China is positively associated with increased US policy uncertainties, and industries intensively depending on foreign investment would be affected more. Lastly, the export from China to US would decrease, and industries whose exports heavily relying on the US market would drop more in response to increases in the US policy uncertainties.