(Xinhua/Cheong Kam Ka)

Uncertainty with pandemic bigger in Macau than Hong Kong – Index


The populations of Macau and Hong Kong are experiencing a sense of uncertainty of nearly three years of COVID-19 pandemic in a very different way, as shown by the Economic Policy Uncertainty Index (EPU), a text-mining methodology using newspaper articles.

As the two graphs show, while in Macau ‘uncertainty’ reached the maximum in these three years, with a record in July last year, in Hong Kong there are four or five moments, in these more than 20 years, lived in a much more intense way by the opinion public – for example the election of the Chief Executive in 2016 or the changes in the RMB fixing mechanism in 2015.

Both in Macau and Hong Kong, the two UPUs are the responsibility of Paul Luk, economist and former Professor at the School of Business, Hong Kong Baptist University and Peggy Huang, former Senior Research Assistant at the same University.

“The economies of Hong Kong and Macau follow different paths. For instance, Macau has a large tourism sector and depends heavily on Mainland Chinese tourists. Moreover, Macau and Hong Kong follow the zero-COVID policy with different stringency,” explains to Macau News Agency Ms Huang.

Even so, the values related to Macau’s EPU are closer to the global EPU (GEPU) index, created by the founders of the methodology and retrieved on the website https://www.policyuncertainty.com/

The GEPU is a GDP-weighted average of 21 national EPU. “Its upwards trend in the post pandemic period is significant, which is in line with the Macau pattern,” says Peggy Huang.

Despite their appearance less than a decade ago, the researchers who have been developing these EPUs in various parts of the world trace their research back to earlier periods. The one in Hong Kong started in January 1998 and that in Macau in July 2000, thus allowing both to have long-term perspectives.

This is not the first time that significant differences have emerged between Macau and Hong Kong.

The terrorist attack of 2001 (9/11) was experienced in a very different way, with the population of Macau attributing-in the EPU index-twice as much importance.

The bankruptcy of Lehman Brothers, which gave rise to the 2008 global financial crisis, was also felt more in Macau than in Hong Kong.

At this point, it is important to clarify that, since the methodology created by Scott R. Baker, Nicholas Bloom & Steven J. Davis (“Measuring Economic Policy Uncertainty”) is universal, the choice of media from which references are taken varies from territory to territory.

In Macau, for example, Luk and Huang use four local newspapers to construct the index (retrieved on the website https://economicpolicyuncertaintyinchina.weebly.com/epu-in-Macau.html), namely Jornal Do Cidadao, Jornal “Va Kio”, Macau Daily News, and Tai Chung Pou.

In Hong Kong, this scientist builds and updates the index (https://economicpolicyuncertaintyinchina.weebly.com/epu-in-hong-kong.html ) using ten Hong Kong newspapers: Wen Wei Po, Sing Pao, Ming Pao, Oriental Daily, Hong Kong Economic Journal, Sing Tao Daily, Hong Kong Economic Times, Apple Daily, Hong Kong Commercial Daily, and Ta Kung Pao. From July 2021 onwards, the index is compiled using nine newspapers due to the closure of Apple Daily.

Following the rules defined by the creators of the GEPU, they count the frequency of newspaper articles that contain at least one word in each of the four term sets shown in the next table.

“We scale the number of articles meeting all criteria in each month by those that meet only criteria (1) and (2) for the same month. We then standardize the scaled series to a unit standard deviation using data prior to December 2009, followed by an averaging of the resulting monthly series across the ten newspapers. At last we normalize the index to have a mean of 100 for the period from June 2000 to December 2009,” the authors explains.

According to Mr Luk, EPU “it is intuitive and captures heightened uncertainty amid major economic and political events, from both the local economy and the external environment. The index is correlated with key macroeconomic quantities, such as the real GDP growth, private investment, gross gaming revenue and unemployment growth. In a vector auto-regressive analysis, we find that higher EPU dampens consumption and increases unemployment. Overall, the index is a useful measure to understand and forecast the Macau economy”.

Specifically, “high EPU reflects a high degree of uncertainty in economic policy. Economic research suggests in times of high uncertainty, businesses reduce their investments and households cut their consumption as they become risk adverse.”

More: “Our analysis suggests that higher EPU would dampen economic activities and increase unemployment, in line with theories and empirical evidences in other countries. Overall, we demonstrate that the EPU index enhances our understanding of the macro-economy and is a helpful tool to enhancing economic policymaking.”

However, Peggy Yun Huang concedes to MNA, although “the EPU methodology is designed for capturing Economic Policy Uncertainty in a timely manner from newspapers. With replicable and traceable features, the methodology is applicable for worldwide comparison purpose,” the choice of media “does not cover social media or online streaming platforms, which has growing number of posts by influencers in recent years.”

In Macau, for example, Luk and Huang use four local newspapers to construct the index (retrieved on the website https://economicpolicyuncertaintyinchina.weebly.com/epu-in-Macau.html), namely Jornal do Cidadao, Jornal “Va Kio”, Macau Daily News, and Tai Chung Pou.

In Hong Kong, this scientist builds and updates the index (https://economicpolicyuncertaintyinchina.weebly.com/epu-in-hong-kong.html ) using ten Hong Kong newspapers: Wen Wei Po, Sing Pao, Ming Pao, Oriental Daily, Hong Kong Economic Journal, Sing Tao Daily, Hong Kong Economic Times, Apple Daily, Hong Kong Commercial Daily, and Ta Kung Pao. From July 2021 onwards, the index is compiled using nine newspapers due to the closure of Apple Daily.

Following the rules defined by the creators of the GEPU, they count the frequency of newspaper articles that contain at least one word in each of the four term sets shown in the next table.

“We scale the number of articles meeting all criteria in each month by those that meet only criteria (1) and (2) for the same month. We then standardize the scaled series to a unit standard deviation using data prior to December 2009, followed by an averaging of the resulting monthly series across the ten newspapers. At last, we normalize the index to have a mean of 100 for the period from June 2000 to December 2009,” the authors explain.

According to Mr Luk, EPU “it is intuitive and captures heightened uncertainty amid major economic and political events, from both the local economy and the external environment. The index is correlated with key macroeconomic quantities, such as real GDP growth, private investment, gross gaming revenue and unemployment growth. In a vector auto-regressive analysis, we find that higher EPU dampens consumption and increases unemployment. Overall, the index is a useful measure to understand and forecast the Macau economy”.

Specifically, “high EPU reflects a high degree of uncertainty in economic policy. Economic research suggests in times of high uncertainty, businesses reduce their investments and households cut their consumption as they become risk adverse.”

In addition: “Our analysis suggests that higher EPU would dampen economic activity and increase unemployment, in line with theories and empirical evidence in other countries. Overall, we demonstrate that the EPU index enhances our understanding of the macro-economy and is a helpful tool to enhance economic policymaking.”

Still, Peggy Yun Huang concedes to MNA, although “the EPU methodology is designed for capturing Economic Policy Uncertainty in a timely manner from newspapers. With replicable and traceable features, the methodology is applicable for worldwide comparison purposes.” The choice of media “does not cover social media or online streaming platforms, which have seen a growing number of posts by influencers in recent years.