China’s Five-Year Plans are shocks to growth in targeted industries in China. These plans were not preceded by low production or employment in the same industries in the U.S., but were followed by shrinkage of establishments and employment one to two years down the road. The dynamics of stock returns, firm valuation, and firm desire to hire indicate that the stock market and corporate decision makers did not expect deteriorating prospects of the targeted industries prior to, but only made adjustments after the announcement of the Plans.
By Xiao Cen, Vyacheslav Fos and Wei Jiang