The Effect Of RMB Exchange Rate On Fixed Asset Investment

The exchange rate is an important part of a country’s macroeconomic environment. The stability of the exchange rate is in favor of trade between countries, also, it is conducive to the development of the domestic economy. Our country has always attached importance to the exchange rate. We are now in the accelerating process of internationalization of the RMB and the steady reform of the domestic financial market. Consequently, the impact of exchange rate changes on China’s economy is deepening gradually. In 2005, we introduced exchange rate reform, the RBM exchange rate pegged to a basket of currencies instead of the dollar, our government aimed to form a more flexible RMB exchange rate mechanism. In the macro, exchange rate effects the international balance of payments and the domestic interest rate, also it has an impact on the domestic investment and foreign direct investment (FDI) inflows through four effects:wealth effect, demand effect, cost effect and risk effect. In the micro, the exchange rate can impact enterprises’ investment decisions through their exposure to foreign risk in both import and export channels. As for the enterprises in china, the form of their ownership is unique, and their development is unbalanced among different regions. Thus, the impact of exchange rate on different ownership types of enterprises and the ones in different regions also have certain research value.Based on existing researches, this essay tries to sort out the impact of exchange rate changes on investment of listed companies, and do empirical analysis with panel data. In this paper, I research the influence of exchange rate changes on the investment decision of enterprises with different extent of foreign exposure, different types of ownership and different belonging regions. Firstly, combining both domestic and foreign research achievements, this essay gives a theoretical statement of the way in which exchange rate changes affect investment, the channels through which the affect happens and angel constraints of the affect. Secondly, I conduct there empirical analysis to test the theory. This paper uses cash-flow method to measure the extent of enterprises’ foreign exposure and then classify the enterprises based on the results; this paper use macroscopic time-series data to research the impact of exchange rate changes on different enterprises’ investment classified by types of ownership; According to the National Bureau of Standards, this paper divide China’s major provinces and autonomous regions into eastern, central and western regions. Using data from CSMAR database, this paper research the sensitivity of listed companies’investment on the exchange rate changes. By Hausman test, the first and the last empirical analysis both adapt to fixed effects model.Empirical results of this paper are basically the same with previous theoretical analysis and the results of existing studies. RMB exchange rate appreciation is responsible for the scaled down of listed companies’ investment in fixed assets. It shows that the RMB appreciation has more negative effects on export and cost than its positive effect on increasing demand for domestic products. Wherein the enterprises with more remarkable external exposure appear to be more sensitive to exchange rate changes; the effect of exchange rate changes on investment differs among different ownership-type enterprises. Among them, the domestic-funded enterprises invest more with the RMB appreciation, while foreign-invested enterprises are on the contrary; Exchange rate changes have the heaviest effect on enterprises in the west area, followed by the eastern region. In addition, the company’s size liquidity leverage and monopoly force restrain the effect of exchange rate changes on corperate investment.