The Long-term Relationship between USD to CNY Exchange rate and China’s Semiconductor: An Empirical Research

Abstract

As a fast-growing industry, semiconductors have gradually become a necessity in the modern world. In addition to its economic importance, the semiconductor industry is closely linked to national and social security. Modern national security largely depends on the level of science and technology, and the level of science and technology in the semiconductor industry plays a decisive role, so the development of the chip industry determines a country's national security and military status to a large extent. China, now the world's second largest economy, is also aggressively developing its semiconductor industry. Meanwhile, the import and export of the semiconductor industry is largely affected by the exchange rate between China and the United States. In this paper, China's semiconductor index from January 1994 to September 2022 and the USD to RMB exchange rate from January 1994 to present are extracted. The VAR model was applied in the study to evaluate the link between variables, and the ARMA-GARCH model was used to determine and analyze both earning ability and stock volatility throughout these years. The study predicts the future development direction of Chinese semiconductor industry and provides investment recommendations to its stakeholders.