Abstract: This paper establishes a general equilibrium trade model between two countries.In the model,the degree of the impact of exchange rate on optimal size of FDI is directly proportional to the product export ratio.The appreciation of host country's currency and an increase of exchange rate volatility have a greater inhibitory on export-oriented FDI inflows than market-oriented FDI inflows.The model provides a theoretical explanation for the over dependence on exports and the“fear of floating”exchange rates in emerging markets.Considering the great regional and industry differences in FDI distribution,we construct the regional and industrial panels based on 1999—2007 database of industrial enterprises in China.This study shows that the RMB appreciation depresses export-oriented FDI inflows.With improvements in economic growth quality and structural reforms becoming the main task of China's strategy of reform and opening up at a new stage,the government should encourage market-oriented FDI inflows which have a closer link with domestic industry.Meanwhile,China should overcome the“fear offloating”to let RMB exchange rate play a better role in rebalancing the internal and external economy.

Key words: RMB Exchange Rate Export-oriented FDI Market-oriented FDI Product Export Ratio Panel Data

JEL Classification: F23 F31 4u39y6KN8QhkWD9A50xejOnJp+8zYz6j8GF4OylfM+JmVH4RNau+bpsSiKG1pwVa