Analysis On The Impact Of RMB Exchange Rate Fluctuates On China's Outward Foreign Direct Investment

The 16th National Conference for CPC report clearly stated:in order to adapt to economic globalization and WTO accession of the new situation, in a larger scope, wider areas and higher level participation in international technological cooperation and competition, we should make full use of international and domestic markets, optimize resources configuration, expand the space,and make full use of the Open policy to promote reform and development. In particular, since the exchange reform in 2005, the appreciation of the RMB at a stage of excess domestic liquidity and the international context of economic imbalances, encourage the development of foreign direct investment has important practical significance. With close to 10%economic growth in 10 years, China has a strong domestic economy, China's outward foreign direct investment(OFDI) has also been a rapid growth, more and more its enterprises participate in international mergers and acquisitions, this caused the attention of scholars abroad. However, from the domestic perspective, few of scholars researched the RMB exchange rate movements on its impact of China's OFDI. Therefore, the study of it is very important for the development of China's economic policy, which also should become the focus in the investment theoretical circle.As the classical theory of international investment, a currency's exchange rate movements will affect the direct investment of home country from the production cost effect, wealth effect and the capitalization rate effect. Based on the classical theory and the summary of the United States'and Japan's direct investment experience, this thesis concluded RMB appreciation will contribute to a greater extent of China's OFDI, but exchange rate volatility will reduce China's OFDI based on a theoretical model.This thesis further used the cointegration theory and error correction model to analyze China's OFDI and real effective exchange rate, exchange rate volatility between the long-term equilibrium relationship and short-term dynamic adjustment relations, with 1982-2009 annual general data. Finally, this thesis use the Granger causality to test the causal relationship between variables.The empirical results showed that the real effective exchange rate and exchange rate volatility have long-term cointegration relationship with the OFDI. And the appreciation of RMB will promote Chinese enterprises to increase OFDI. Exchange rate volatility will inhibit outward direct investment of Chinese enterprises in the long run, but play a catalytic role in the short term. Granger causality test showed the real effective exchange rate and exchange rate volatility is Granger cause of OFDI, but does not hold in turn.Finally, in accordance with the characteristics of our country's outward foreign direct investment and the conclusions of empirical tests, this thesis puts forward policy recommendations which can promote China's OFDI in future.