Study on the Impact of RMB Exchange Rate on China's Industrial Structure Adjustment

Abstract

This paper firstly summarizes the current situation of China's current industrial structure as well as the change of exchange rate system, systematically describes the research object of this paper, and outlines its main features. After that, this paper analyzes the impact of the real effective exchange rate of RMB on China's secondary and tertiary industries for the purpose of the study, takes into full consideration the main factors affecting the industrial structure, selects a large number of control variables, and completes the empirical analysis of China's overall as well as the eastern, middle and western regions by using the panel data of the country's 30 provinces in the 16-year period from 2005 to 2020. In addition, a variety of robustness tests were conducted to fully ensure the stability and interpretability of the model. It is finally concluded that the appreciation of RMB exchange rate will significantly benefit the development of China's tertiary industry, promote the industrial structure from the secondary industry to the tertiary industry, and complete the upgrade of industrial structure. Specifically, for every 1% increase in the real effective exchange rate of RMB, the proportion of tertiary industry in the GDP of the whole country, the east, the center and the west will increase by 0.7850%, 0.7171%, 1.0186% and 0.4873% respectively. Besides, this paper also verifies the indirect impact of the exchange rate on the industrial structure through the three paths of price effect, foreign trade openness and FDI, and verifies the existence of the intermediary effect. According to the empirical results, the price effect, FDI, and the increase of foreign trade openness will promote the advanced industrial structure of China. But both FDI and foreign trade openness are negatively correlated with the exchange rate, which is the core variable of this paper.