Decoding China’s Industrial Policies

Hanming Fang (), Ming Li () and Guangli Lu ()
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Hanming Fang: University of Pennsylvania and NBER
Ming Li: Chinese University of Hong Kong
Guangli Lu: Chinese University of Hong Kong

PIER Working Paper Archive from Penn Institute for Economic Research, Department of Economics, University of Pennsylvania

Abstract: We decode China’s industrial policies from 2000 to 2022 by employing large language models (LLMs) to extract and analyze rich information from a comprehensive dataset of 3 million documents issued by central, provincial, and municipal governments. Through careful prompt engineering, multistage extraction and refinement, and rigorous verification, we use LLMs to classify the industrial policy documents and extract structured information on policy objectives, targeted industries, policy tones (supportive or regulatory/suppressive), policy tools, implementation mechanisms, and intergovernmental relationships, etc. Combining these newly constructed industrial policy data with micro-level firm data, we document four sets of facts about China’s industrial policy that explore the following questions: What are the economic and political foundations of the targeted industries? What policy tools are deployed? How do policy tools vary across different levels of government and regions, as well as over the phases of an industry’s development? What are the impacts of these policies on firm behavior, including entry, production, and productivity growth? We also explore the political economy of industrial policy, focusing on top-down transmission mechanisms, policy persistence, and policy diffusion across regions. Finally, we document spatial inefficiencies and industry-wide overcapacity as potential downsides of industrial policies.

Keywords: Large Language Models; Industrial Policy; Policy Diffusion; Revealed Comparative Advantage; Overcapacity (search for similar items in EconPapers)
JEL-codes: C55 L52 O25 (search for similar items in EconPapers)
Pages: 110 pages
Date: 2025-05-12
New Economics Papers: this item is included in nep-cna and nep-tid
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