Rmb Exchange Rate Fluctuations In China's Industrial Structure

The exchange rate is a kind of rate about exchanging one country's currency into another country's currency. And it is a kind of price where one currency is expressed in another currency. Industry structure refers to the composition of industries and the links and the proportion between them. The long-term changes in exchange rates will be transmitted to the production of domestic enterprises to deeply influence the domestic economy, capital and even the industrial structure by the price, capital, taxes, and so forth.One consequence of RMB exchange rate reform in 2005 and world economic crisis in 2008 is that the RMB exchange rate against the U.S. dollar continues sliding, and foreign demand weakens sharply. The world economic slowdown directly results a huge impact on China's industrial structure which is characterized by export-led economy. In order to explain the effect's role and degree of exchange rate movements on China's industrial structure, this paper derived both from the theoretical and empirical analyses report the conclusion about the impact of the RMB exchange rate to Chinese industrial structure by using the theoretical model and empirical model of two research methods.The theoretical model starts from the firm's profit function which is under the constraints of the Cobb - Douglas production function to deduce the exchange rate elasticity of the enterprise products'sales. The conclusion of this model indicates that the main factors which affect the exchange rate elasticity of the producers'sales include the level of domestic sales proportion of total revenues, the elasticity of foreign markets demand, the exchange rate elasticity of domestic prices, the exchange rate elasticity of foreign prices, and the level of foreign investment in capital goods.In the empirical analysis, we select time series of the fixed capital investment, import and export volume data of 34 industries in China to fit the logarithm models of the impact of the exchange rate movements on the fixed capital investment and import and export levels of each industry, and then cluster the regression results. The empirical results show that there is little effect, which comes from the changes in real effective exchange rate, on the fixed capital investment in various industrial sectors in China, and the main impact is implemented by changing the import and export product mix. The short-term changes of RMB real effective exchange rate will not have a material effect on China's industrial structure, but the long-term trend of RMB exchange rate has a profound impact on China's industrial structure, and it is this rigidity that contributed to the adjustment of industrial structure in China.Therefore, in order to keep domestic economy developing stably and rapidly, China has to maintain a stable RMB exchange rate, reform the exchange rate system gradually, increase the IPR content of export products while encouraging foreign investment, accelerate the speed of industrial structure adjustment, improve the energy structure, and make a fundamental change of economic growth in China which excessively relay on external demand and investment.Finally, because of the8 lack of data, this paper doesn't make a further research in relation to the impact of RMB exchange rate on the overall economic situation of each industry. If more micro statistics can be gained in the future, a in-depth study within the industries on the basis of this paper will be done.