Industrial Policy and Asset Prices: Stock Market Reactions to Made In China 2025 Policy Announcements
58 Pages Posted: 30 Jan 2020 Last revised: 20 Mar 2020
Date Written: March 14, 2020
Appendix available here:https://ssrn.com/abstract=3525571.
Using event study methodology we examine investors’ initial and long-run assessments of the Made in China 2025 industrial policy, announced in May 2015. We track stock price evolutions through 2018 for 360 listed Chinese, US, Japanese, and European companies in the ten mostly high-tech industries targeted by the MC 2025 policy. Announcement period abnormal returns are significantly positive for treated Chinese and US companies, but generally insignificant for Japanese and European treated firms. Chinese firms’ cumulative abnormal returns fall sharply (up to -50.0%) over May 2015 to October 2016, the month before Donald Trump’s election, and then decline much further (at least an additional -41.0%) through year-end 2018. US firms experience significantly positive CARs (up to 16.0%) during the post-announcement to pre-election period and even more (4.0% to 23.6%) after Trump’s election. Japanese firms have significantly negative CARs during the post-announcement to pre-election period, but all other group/period CARs are insignificant. Most Chinese treated-industry firms benefit during the first few post-announcement months, but then lose heavily from 2016 onwards. US treated-industry firms benefit in both the short and long-term, and US high-tech companies emerge as the biggest long-term MC 2025 financial winners, with CARs generally exceeding 30%. Economic policy uncertainty analysis verifies that our chosen event periods are indeed impactful. These results are not driven by post-announcement changes in R&D or capex spending, changing financial constraint levels or, for Chinese firms, by being located in a “key city” or by changes in government support. Even from a non-financial perspective, such as gaining market share or promoting employment growth, the MC 2025 policy does not promote targeted industries.
Keywords: China, Industrial Policy, Event Study, R&D Expenditures, Economic Policy Uncertainty
JEL Classification: G14, G15, G18, K11, L52, L60
Suggested Citation: Suggested Citation