How Trade Rules Shake Up Chinese Businesses

Trade rules are confusing. They change often. This makes it hard for companies to plan ahead. In China, this confusion is shaking up stock prices. When trade rules are unclear, stock prices can drop suddenly. This is called a crash risk. Researchers looked at this problem. They studied Chinese companies from 2001 to 2023. They found that when trade rules are unclear, stock prices are more likely to crash. This is especially true for private companies. It is also true for companies with a CEO who is also the chairperson. Companies that do business abroad and those not audited by top firms are also at risk.The study found that unclear trade rules make companies hide bad news. This is called discretionary accruals. It also makes companies export less. Investors get confused. Analysts make wrong predictions. All of this makes stock prices drop suddenly. But there is good news. When markets are more open and companies use more technology, the risk of stock crashes goes down. This is because open markets and technology help companies deal with uncertainty. This study shows that unclear trade rules can make companies fragile. It also shows how these rules affect stock prices. This information can help policymakers and investors make better decisions.