Does the capacity reduction policy affect income and household expenditure? : evidence from China : a thesis presented in partial fulfilment of the requirements for the degree of Master of Business Studies in Economics at Massey University, Auckland Campus, New Zealand

Abstract

This thesis investigates whether China’s capacity reduction policy affected workers’ income and household expenditure. The analysis uses seven waves of China Family Panel Studies data from 2010 to 2022 and estimates difference-in-differences and event-study models for individual income, wage income, family income, and family expenditure. The income estimates are generally small, imprecise, and sensitive to treatment definitions and matching. The clearest pattern appears in household expenditure. In the controlled baseline event-study, the estimates imply expenditure reductions of approximately 15–28 percent between 2014 and 2020, relative to the 2010 treatment-control difference, with the largest decline occurring in 2016. The average fixed effects DID estimate is also negative but is not statistically significant, so the expenditure result is interpreted mainly as dynamic evidence. Alternative treatment and control groups, matched samples, policy-timing specifications, and outlier checks produce a broadly similar pattern. Overall, the results indicate that industrial restructuring may affect household welfare through spending responses to perceived income and employment risk, even when changes in measured income are weak.