The Impact Of RMB Exchange Rate On China's Foreign Direct Investment Inflow

Foreign direct investment (FDI) is the most important pattern of using foreign capital in China. FDI has done a great contribution to propel China's economy. The change of exchange rate (appreciation and depreciation) may influence a multi-national company's competitiveness and investment decision. Therefore, under the current background of continuous appreciation of RMB, the research of the impact of exchange rate on China's FDI inflow will make sense.This paper considers that FDI of different type of industry has different investment motivation and characteristic. The change of exchange rate will impose different process and extent of effect on different type of FDI. A general analysis will conceal the relationship of exchange rate level and FDI that truly exists in those industries. In view of this, this paper tries to find out how the change of exchange rate influences FDI of a certain country based on industry level.This paper first divides FDI into two types: cost-oriented and market oriented. Then a simple theoretical model is constructed in a micro view of corporation decision to analyze how exchange rate level influences a multi-national company's overseas investment, from which the impact of exchange rate on FDI inflow of a certain country is obtained. This conclusion is testified by general empirical analysis and industry-based empirical analysis. And several major industries are picked out and closely examined. To combine the theoretical analysis and empirical analysis, this paper considers that China's FDI also consists of two types, cost-oriented and market oriented. The change of exchange rate level will impose different effect on these two types of FDI. The appreciation of RMB will stimulate market-oriented FDI, but restrain cost-oriented FDI, which will significantly change China's FDI structure. Lastly, the corresponding policy suggestion is presented.