State-owned Enterprises in China as Macroeconomic Stabilizers: Their Special Function in Times of Economic Policy Uncertainty

China has many state-owned enterprises (SOEs) and they have accounted for a large proportion of China's GDP over the last four decades. China's rapid growth contradicts literature that focuses on the inefficiency of SOEs. This study shows that, in periods of economic policy uncertainty (EPU), SOEs have performed a special function as “macroeconomic stabilizers.” Using Chinese listed firm data from 2008 to 2019, we investigate five aspects of SOEs' unique functions as macroeconomic stabilizers: employment, investment, growth, financial operation, and expectations. When EPU increased, SOEs had more employment, higher investment expenditure, lower performance volatility, more robust financial structures, and more stable expectations than private firms. We employ the US–China trade war as an exogenous shock on EPU to conduct a difference-in-difference-in-differences approach to mitigate the problem of potentially omitted variables. The findings of this study provide a new perspective to better explain the functions of SOEs in the 21st century.