The External Impact of China's Exchange Rate Policy: Evidence from Firm Level Data

We examine the impact of renminbi revaluation on firm valuations, considering two surprise announcements of changes in China's exchange rate policy in 2005 and 2010 and data on 6,050 firms in 44 countries. Renminbi appreciation has a positive effect on firms exporting to China but little positive or even a negative impact on those providing inputs for China's processing exports. Stock prices rise for firms competing with China in their home market while falling for firms importing Chinese products with large imported-input content. Renminbi appreciation also reduces the valuation of financially-constrained firms, particularly in more financially integrated countries.