Perceptions and Performance: Media Sentiment on China's Exports

In this paper, we develop a novel media sentiment index based on monthly data from the Global Database of Events, Language and Tone. Our index is a moving average of the monthly data whose weights are derived from relevant psychological models. We examine the impact of destination countries' media sentiment on China's exports. Our results indicate that a 1% decrease in a country's media sentiment index regarding China could lead to as much as a 0.035% decline in China's exports to that country. We further identify two channels through which media sentiment affects China's exports: the policy channel represented by non‐tariff barriers and the consumers' preferences channel reflected by the country‐of‐origin effect. While the impact of the policy channel seems small, we find the consumers' preferences could explain about half of the sentiment effect, based on the investigation of the EU. Our results are robust after various tests. Additionally, we find the effect varies across different types of reports, income levels and product types. Finally, we find that the U.S.–China trade war and the COVID‐19 pandemic also alter the impact of media on exports.