The Impact of RMB Exchange Rate Fluctuations on China's Outward Foreign Direct Investment: An Empirical Analysis

Recently, the RMB exchange rate has experienced significant fluctuations. On May 13th, the spot exchange rate of onshore RMB against the US dollar fell below 6.8, depreciating by over 1000 basis points compared to the opening rate of 6.6985 on May 9th. Against this backdrop, this paper follows the research paradigm of Zhang Weifu (2008) to empirically examine the impact of RMB real exchange rate changes on Chinese enterprises' outward foreign direct investment (OFDI). Drawing on OFDI research frameworks for developed and developing countries, it first reviews theories of internal forces, external forces, and environmental support for China's OFDI, and discusses real exchange rate impacts on OFDI through the environmental support channel. A standardized microeconomic model is developed to show, under certain assumptions, that real exchange rates affect OFDI via export channels. An empirical model then tests these effects. Finally, policy recommendations are provided based on the theoretical and empirical results.