Study On The Effect Of Rmb Exchange Rate On The Scale Of Chinese Direct Investment To Asean Countries

Since a formal dialogue between China and ASEAN countries has started in 1991, the bilateral economic and trade cooperation between China and ASEAN countries developed rapidly. In 2013, the FDI from China to ASEAN increased 50 times to 7.267 billion U.S Dollar from 1995, which was 152.3 million U.S Dollar at that time. ASEAN has become China’s third largest investment partner. Chinese companies choose ASEAN to be the first place to operate their business abroad.During the 24 years, exchange rate regime of China has changed from a fixed exchange rate system to a floating exchange rate system, which is a more market-oriented exchange rate formation mechanism. The exchange rate has become more flexible, but it came up more uncertainty as well. Does the change of RMB exchange rate impact China’s FDI to ASEAN? How does it impact and is the impact positive or negative? Are Chinese companies more competitive to invest in ASEAN with the appreciation of the RMB?In this paper, we described the classical theories of the effect of exchange rate on FDI first. In order to analyze the relationship between exchange rate and foreign direct investment, we made a model then. In the descriptive analysis, we introduced the evolution history of the RMB exchange rate system first. And then we analyzed the situation of direct investment from China to ASEAN. At last, we made a description of the effect of exchange rate on FDI from China to ASEAN. In the empirical part, we selected the data of China’s FDI to ASEAN countries from 2003 to 2013, the bilateral exchange rate of China and ASEAN countries and the volatility of exchange rate. We made a fixed effects panel model to analyze the relationship between exchange rate and FDI. At last, we summarized the whole paper, and made some suggestions to improve Chinese FDI to ASEAN countries.