Why is China so Attractive for FDI The Role of Exchange Rates

Yuqing Xing

No EMS_2004_04, Working Papers from Research Institute, International University of Japan

Abstract: This paper argues that China's exchange policy plays a critical role in its FDI boom. Yuan's devaluation and the pegging yuan to the dollar policy not only offset the pressure of rising real wage due to sustained economic growth in the last two decades, but also improved China's competitiveness in attracting global FDI. Examining the hypothesis in the context of Japanese FDI in China's nine manufacturing sectors from 1981 to 2001, the paper finds a strong correlation between Japanese direct investment in China and the real bilateral exchange rate between yen and yuan. Empirical evidences strongly suggest that China's exchange rate policy is one of critical factors driving FDI into China.

Keywords: FDI; Exchange Rate; Manufacturing (search for similar items in EconPapers)
JEL-codes: F23 F31 O53 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2004-03
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https://www.iuj.ac.jp/workingpapers/index.cfm?File=EMS_2004_04.pdf First version, 2004 (application/pdf)

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Journal Article: Why is China so attractive for FDI? The role of exchange rates (2006)
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