Integrating Climate Adaptation Into Development: How Extreme Heat Shapes Firm Dynamics in China

ABSTRACT With the more frequent occurrence of extreme temperature events around the world, the impact of high temperature on economic activities has become an important issue. It is still necessary to explore whether heat randomly stops commercial activities or changes the structure of commercial activities. Based on county‐level data, registered data of more than 1 million companies, and detailed climate data, this paper explores the detailed figures of firms entering and exiting the Chinese market under extreme high temperature. The results show that heat has an obvious asymmetry between entry and exit, which reduces the entry of new firms far more than it accelerates the exit, indicating that this is a structural screening rather than a general recession. A day when the average temperature is higher than 32°C will reduce the number of new firms entering the market in China by about 10,427 annually. High temperature has seriously hindered the entry of traditional high‐exposure industries such as agriculture and construction, but it has little influence on high‐tech and knowledge‐intensive firms. Firms with a weak ability to resist risks will quit faster at high temperature. Further analysis shows that productivity and cost pressure are the main factors leading to such selectivity. These findings can be used as important micro‐evidence for evaluating the economic impact of climate change and designing effective adaptive industrial policies and regional coordination strategies.