China Policy Uncertainty Indices Based on Mainland Papers

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We are pleased to host newspaper-based indices of policy uncertainty in China developed by Steven J. Davis, Dingqian Liu and Xuguang S. Sheng. They quantify uncertainty-related concepts from October 1949 onwards using two mainland Chinese newspapers: the Renmin Daily and the Guangming Daily.

To construct an Economic Policy Uncertainty Index for China, they first obtain monthly counts of articles that contain at least one term in each of three term sets: Economics, Policy, and Uncertainty. Table 1 reports the terms in each set using Chinese characters and the corresponding English translations. In a second step, they scale the raw monthly EPU counts by the number of total articles for the same newspaper and month.

Third, they divide their sample into three periods: the era of central planning (1949-1978), the reform and opening-up period (1979-1999), and the globalization era (2000 onwards). In addition to their distinct economic characteristics, newspaper practices differ markedly in each period. Daily article counts are considerable higher in the second period than the first and higher yet in the third period. Moreover, the percentage of newspaper articles that discuss economics rises from the first period to the second and rises further from the second period to the third.

In a fourth step, they standardize each newspaper's monthly series of scaled frequency counts to have a unit standardization. They perform this standardization operation separately in each period, using data from 2000 to 2018 for the globalization era. Fifth, they compute the simple average of the standardized series over newspapers by month. In a final step, they normalize each period's index value to an average of 100. For the globalization era, they normalize to 100 from 2000 to 2018.

Davis, Liu and Sheng also construct a monthly Trade Policy Uncertainty Index for China from 2000 onwards using the same two newspapers. Table 2 reports the terms in their Trade Policy, Economics and Uncertainty term sets using Chinese characters and the corresponding English translations.