We developed a machine learning algorithm to “read” the People’s Daily — the official newspaper of the Communist Party of China — and predict changes in China’s policy priorities using only the information in the newspaper. The output of this algorithm, which we call the Policy Change Index (PCI) for China, turns out to be a leading indicator of the actual policy changes in China since 1951. The nearby figure plots the PCI against the ground truth of China’s policy changes. The PCI often spikes months before policy changes take place, validating the index’s predictive power.


Figure: Policy Change Index and major events in China, 1951 Q1 to 2018 Q3

Note: The PCI series is a predictor of policy changes. A spike in the PCI signals an upcoming policy change, while a vertical bar marks the occurrence of an policy change labeled by the respective event.


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