RMB resilience strategies to drive business performance amid the global crisis
Abstract
The purpose of this article is to examine the impact of RMB exchange rate fluctuations on the strategic decisions of Chinese companies in the context of their export activity in the foreign market. The research methodology is based on integrated annual customs data for the period 2014–2021 and econometric analysis. The upward fluctuations in the level of the real effective exchange rate of the RMB encourage companies to withdraw from foreign markets and lead to a significant slowdown in companies’ export market entry. At the same time, companies with foreign capital are able to cope with currency risks to a much greater extent than companies with state and private participation. The analysis of company characteristics based on the principle of differentiation shows that company performance, profit volume, business scale, and export experience of a company can lead to a delay in the favorable effect of RMB appreciation for companies leaving export markets. This article provides valuable guidance for companies on strategies to avoid currency risks and make effective management decisions in the context of exports.
First published online 18 January 2024
Keyword : business, foreign exchange market, export, modelling, money supply, strategy
How to Cite
Zheng, Y., Dong, H., & Milojevic, M. (2023). RMB resilience strategies to drive business performance amid the global crisis. Journal of Business Economics and Management, 24(6), 1102–1118. https://doi.org/10.3846/jbem.2023.20654
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Biswas, A. K., von Hagen, J., & Sarkar, S. (2022). FDI mismatch, trade mis-reporting, and hidden capital movements: The USA–China case. Journal of International Money and Finance, 120, Article 102534. https://doi.org/10.1016/j.jimonfin.2021.102534
Buckley, P. J. (2020). China’s belt and road initiative and the COVID-19 crisis. Journal of International Business Policy, 3(3), 311–314. https://doi.org/10.1057/s42214-020-00063-9
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Corbet, S., Hou, Y. G., Hu, Y., Oxley, L., & Xu, D. (2021). Pandemic-related financial market volatility spillovers: Evidence from the Chinese COVID-19 epicentre. International Review of Economics & Finance, 71, 55–81. https://doi.org/10.1016/j.iref.2020.06.022
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Fang, X., & Cao, W. (2021). The impact of COVID-19 on the status of RMB as an anchor currency. Asian Economics Letters, 2(1), Article 21439. https://doi.org/10.46557/001c.21439
Funke, M., & Tsang, A. (2020). The People’s Bank of China’s response to the coronavirus pandemic: A quantitative assessment. Economic Modelling, 93, 465–473. https://doi.org/10.1016/j.econmod.2020.08.018
Gunay, S. (2021). Comparing COVID-19 with the GFC: A shockwave analysis of currency markets. Research in International Business and Finance, 56, Article 101377. https://doi.org/10.1016/j.ribaf.2020.101377
Guo, W., Chen, Z., & Šević, A. (2021). The political pressure from the US upon RMB exchange rate. Journal of International Financial Markets, Institutions and Money, 73, Article 101293. https://doi.org/10.1016/j.intfin.2021.101293
Hao, K., Han, L., & Li, W. (2022). The impact of China’s currency swap lines on bilateral trade. International Review of Economics & Finance, 81, 173–183. https://doi.org/10.1016/j.iref.2022.05.004
He, Q., Liu, J., & Zhang, C. (2021). Exchange rate exposure and its determinants in China. China Economic Review, 65, Article 101579. https://doi.org/10.1016/j.chieco.2020.101579
Hurley, D. T., & Papanikolaou, N. (2018). An investigation of China‐US bilateral trade and exchange rate changes using the autoregressive distributed lag model. Economic Papers: A Journal of Applied Economics and Policy, 37(2), 162–179. https://doi.org/10.1111/1759-3441.12206
Jia, F., Shen, Y., Ren, J., & Xu, X. (2021). The impact of offshore exchange rate expectations on onshore exchange rates: The case of Chinese RMB. The North American Journal of Economics and Finance, 56, Article 101349. https://doi.org/10.1016/j.najef.2020.101349
Kan, Y. Y. (2017). Why RMB should be more flexible. Journal of Financial Economic Policy, 9(2), 156–173. https://doi.org/10.1108/JFEP-08-2016-0058
Li, Y. (2019). RMB exchange rate reforms and exchange rate preferences of domestic interest groups in China. Economic and Political Studies, 7(4), 413–432. https://doi.org/10.1080/20954816.2019.1667601
Li, Z., & Zhong, J. (2020). Impact of economic policy uncertainty shocks on China’s financial conditions. Finance Research Letters, 35, Article 101303. https://doi.org/10.1016/j.frl.2019.101303
Liu, K. (2021). COVID-19 and the Chinese economy: Impacts, policy responses and implications. International Review of Applied Economics, 35(2), 308–330. https://doi.org/10.1080/02692171.2021.1876641
Liu, W. (2020). The impact of RMB exchange rate fluctuation on enterprises’ export decisions – From the perspective of heterogeneity. Modern Economy, 11(04), Article 920. https://doi.org/10.4236/me.2020.114069
Lo, C. (2021). From trade war to global disruption. In C. Lo (Ed.), China’s global disruption (pp. 147–163). Emerald Publishing Limited. https://doi.org/10.1108/978-1-80043-794-420211010
Louie, B. L., & Wang, M. (2021). China’s forthcoming digital currency: Implications for foreign companies and financial institutions in China. Journal of Investment Compliance, 22(2), 195–200. https://doi.org/10.1108/JOIC-04-2021-0017
Morrison, W. M. (2019). China’s economic rise: History, trends, challenges, and implications for the United States. Current Politics and Economics of Northern and Western Asia, 28(2/3), 189–242.
Peng, Y., & Kang, W. (2020). RMB currency risk management after China’s ‘8.11’ exchange rate reform. Applied Economics Letters, 28(1), 727–730. https://doi.org/10.1080/13504851.2020.1772956
Petry, J. (2020). Financialization with Chinese characteristics? Exchanges, control and capital markets in authoritarian capitalism. Economy and Society, 49(2), 213–238. https://doi.org/10.1080/03085147.2020.1718913
Ramaswamy, S. (2022). The threat of financial sanctions: What safeguards can central banks build? China & World Economy, 30(3), 23–41. https://doi.org/10.1111/cwe.12417
Rao, X. (2021). On the necessity and importance of RMB internationalization. Academic Journal of Business & Management, 3(12), Article 031206. https://doi.org/10.25236/AJBM.2021.031206
Song, L., & Zhou, Y. (2020). The COVID‐19 pandemic and its impact on the global economy: What does it take to turn crisis into opportunity? China & World Economy, 28(4), 1–25. https://doi.org/10.1111/cwe.12349
Wang, B., & Gao, K. (2019). Forty years development of China’s outward foreign direct investment: Retrospect and the challenges ahead. China & World Economy, 27(3), 1–24. https://doi.org/10.1111/cwe.12278
Wang, Y. C., Tsai, J. J., & Chen, X. (2021). The impact of RMB internationalization and international situations on China’s foreign exchange market: Dynamic linkages between USD/CNY and SDR/CNY. Emerging Markets Finance and Trade, 57(5), 1437–1454. https://doi.org/10.1080/1540496X.2019.1624521
Wei, Z., Luo, Y., Huang, Z., & Guo, K. (2020). Spillover effects of RMB exchange rate among B&R countries: Before and during COVID-19 event. Finance Research Letters, 37, Article 101782. https://doi.org/10.1016/j.frl.2020.101782
Xu, Y. (2020). Policy analysis: The NDRC’s Reg. No. 11, China’s new capital control. Hastings Business Law Journal, 16, Article 95.
Yang, K., & Lee, L. F. (2021). Estimation of dynamic panel spatial vector autoregression: Stability and spatial multivariate cointegration. Journal of Econometrics, 221(2), 337–367. https://doi.org/10.1016/j.jeconom.2020.05.010
Zhang, Z. (2017). The mutual effects between the fiscal relations of central and local governments and economic growth in post-reform China. Evolutionary and Institutional Economics Review, 14(1), 101–116. https://doi.org/10.1007/s40844-017-0075-4
Zhou, Y., Cheng, X., & Wang, Y. (2020). Measuring the importance of RMB in the exchange rate spill-over networks: New indices of RMB internationalisation. Economic and Political Studies, 8(3), 331–354. https://doi.org/10.1080/20954816.2020.1775374