Abstract: RMB exchange rate and China′s industrial structure adjustment are hot issue in the current economic field. The paper analyzes the nonlinear effect of RMB exchange rate through FDI path on China′s industrial structure adjustment from 2004 to 2016 by using Markov Regime Switching Vector Auto-regression (MS-VAR) model. The results show that the impact of RMB exchange rate fluctuation on China′s industrial structure depends on the specific stage of the economic cycle and presents the characteristics of the two regimes, in which the regime 1 and the regime 2 represent the gentle and violent economic fluctuation system respectively, and there are different dynamic relationships among the variables under different regimes. The results of impulse response function show that the appreciation of RMB in regime 1 has promoted the inflow of FDI, promoted the optimization and upgrading of industrial structure, regime 2 is the opposite, and the inflow of FDI under the two-regime system has played a positive role in the industrial structure adjustment. But the degree of response in regime 2 is significantly greater than that in regime 1. Therefore,maintaining the basic stability of the RMB exchange rate at a reasonable level of equilibrium to avoid excessive fluctuations in the RMB exchange rate, and increasing the inflow of FDI,will help to promote the optimization and upgrading of China′s industrial structure.

Key words: RMB exchange rate, FDI, industrial structure, MS-VAR model