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How External Forces Reshape the Performance of Chinese Manufacturing Firms

Author(s)

Yifei He, Yinyuan Chen

Affiliation(s)

Case Western Reserve University, Ohio, USA

Abstract

This study examines the impact of external macroeconomic shocks on the quarterly profits of Chinese manufacturing firms. In the context of an increasingly complex and volatile global supply chain system, the transmission mechanisms of RMB exchange rate fluctuations, interest rate changes, international oil price movements, China’s GDP growth, tariff policy shocks, and the COVID-19 pandemic require systematic micro-level empirical analysis. To address the gap in the literature on the joint effects of multiple external shocks and industry heterogeneity, this paper uses a fixed-effects regression model based on quarterly panel data from 47 listed manufacturing firms (2017–2023), applying the inverse hyperbolic sine transformation (asinh) to handle profit variables while retaining negative values. The results show that RMB depreciation significantly reduces manufacturing firm profits, with the effect particularly strong in the automobile and parts industry. China's GDP growth has a significantly positive effect on profitability. In contrast, oil prices, interest rates, tariff shocks, and epidemic shocks do not show significant short-term impacts, revealing the heterogeneous nature of shock transmission across variables. The findings also confirm the moderating role of industry structure in shaping firm-level responses and enrich theoretical understanding of how macro variables affect financial outcomes through microeconomic channels.

Keywords

Chinese Manufacturer; Macroeconomic Shocks; Panel Regression; Exchange Rate Depreciation; Profitability

References

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