Analysis Of RMB Exchange Rate Affecting Chinese Outward Foreign Direct Investment

In recent years, with the increasingly close in domestic economic and the worldeconomy as well as sustained and rapid development of China’s economic and thegrowing of domestic enterprises, the scale of China’s outward foreign direct investmentis also expanding rapidly. China’s OFDI has a positive role in the field of macroeconomy such as promoting China’s economic growth, promoting trade, optimizingindustrial structure, expanding employment and so on. The exchange rate as animportant role in economic among countries, has functions of price conversion in theactivities of the international financial trade. It can adjust a country’s internationalbalance of payments, so it is a country’s main economic levers and important means ofmacroeconomic regulation and control and play an important role in themacroeconomic.The relationship between the exchange rate and the OFDI is always an importanttopic in international economics. Since the1980s, some scholars began to study theexchange rate’s role in the development of OFDI. Their research mainly focused onexchange rate and exchange rate fluctuation to illustrate the relationship between theexchange rate and the OFDI. Currently, accumulated imbalance of payments over along period of time makes the RMB exchange rate face enormous pressure ofadjustment, in the fluctuation process of RMB exchange rate show obvious signs ofappreciation. Due to the worldwide slowdown in foreign direct investment caused bythe US subprime mortgage crisis makes China’s economy has also been a certainnegative impact. Therefore, there have important practical significance for developingpolicies in China from the aspects of theory to study the effect of RMB exchange rateon China’s foreign direct investment, and carries on the analysis from the angle ofpractice.In a long time, there is a vast quantity of documents about RMB exchange rate andattracting foreign investment but lacking deep analysis to the former. Therefore, Base on dynamic panel data models and system GMM estimators, this paper analyzes the impactof exchange rate, exchange rate fluctuations and exchange rate expectations movementson OFDI by using the panel data of Chinese OFDI flows into forty-nine economiesduring2003-2010. The empirical results demonstrate that (i) OFDI increase with aappreciation of the RMB against host country currencies;(ii) it decline with exchangerate volatility; and (iii) it is little affected by exchange rate expectation. In addition,market size, labor cost and resource endowment of the host-country are significantdeterminants of China’s OFDI, meanwhile degree of openness and institutional qualityare not. Based on the empirical conclusions of this study, combined with related theory,related to the development present situation of China’s outward foreign directinvestment, points out the corresponding policy meaning.