The Impact Of China's Real Effective Exchange Rate Variation On Utilization Of Foreign Direct Investment

Since the reform and opening up, Chinese economy has witnessed high growth rates, at the sometime, exchange rate system has undergone several revolutions. some people think the reason of China has been able to maintain stable development is that RMB is undervalued, Their theory is based on RMB'underestimation will contribute to promote direct investment in China for multinational enterprises. since RMB has referenced to a basket of currencies and the managed floating exchange rate system in 2005, The bilateral nominal exchange rate between of dollar and RMB from 8.28 in 2005 depreciate to 6.57 on March 1,2011, but the actual absorption of foreign direct investment has maintained stable growth and some people predict the RMB will continue to appreciate in the recent years. With the larger of RMB exchange rate Volatility, the RMB can not always remain at a certain level, Then what kind of role will RMB exchange rate in china and its fluctuation play in the flow of foreign direct investment?Since reform and opening, China's exchange rate system mainly through the four stages which including the fixed exchange rate system in the planned economy period, dual exchange rate system during the economy transition period, the pegged exchange rate regime after unification of exchange rates and the managed floating exchange rate system. China has maintained rapid growth in the amount of projects and the money of introduced foreign investment early 90s in the 20th century in 2011 .So far, China has 18 consecutive years among developing countries in attracting FDI. We through establish the time series model between the real effective exchange rate,exchange rate volatility and FDI in China from angels of the relatively cost-effectiveness, the wealth effect, risk effects and expected effects,to reach the conclusion about the model shows that the impact of exchange rate fluctuations on FDI in China is not significant in the long run , but the effect of real exchange rate of RMB on FDI is negative, so the appreciation of the RMB will inhibit the inflow of FDI, the devaluation of the RMB will promote FDI inflows.Therefore, in order to promote economic development through rational use of FDI in China, we need to gradually adjust the RMB exchange rate,to guide reasonably in foreign investment,to promote investment in the spillover effect and provide a good investment environment.