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Foreign investors’ reactions to China’s ‘Double Reduction’ policy: evidence from the A-H market divergence

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  • Wei Liu
  • Xin Chang
  • Karel Hrazdil
  • Jiyuan Li

Abstract

Utilizing segmented dual class shares of Chinese firms (A-shares traded in mainland China and H-shares in Hong Kong), we document significant negative market response and a decrease in liquidity from foreign investors to the ‘Double Reduction’ policy, whose impact extends beyond the education sector and affects other markets. In cross-sectional tests, we further observe significant permanent changes to the liquidity of H-shares relative to A-shares and that the impact on liquidity is less pronounced among Chinese firms that are state-owned and politically connected. These results highlight some unintended consequences of the Double Reduction policy and contribute to broader concerns about regulatory unpredictability in China.

Suggested Citation

  • Wei Liu & Xin Chang & Karel Hrazdil & Jiyuan Li, 2026. "Foreign investors’ reactions to China’s ‘Double Reduction’ policy: evidence from the A-H market divergence," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 33(2), pages 406-419, March.
    • Handle: RePEc:taf:raaexx:v:33:y:2026:i:2:p:406-419
    DOI: 10.1080/16081625.2025.2485994
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