Exchange rate changes, import market adjustments, and prices of imported products

The current two-way fluctuation of China’s exchange rate has become increasingly pronounced. Utilizing data from the Chinese Customs Database, this paper employs a high-dimensional fixed effects model to investigate whether firms can mitigate the impact of exchange rate changes on import prices by adjusting their import sources. The results show that an RMB appreciation leads to a greater reduction in import prices when firms source from a larger number of markets, and this effect is primarily driven by a decline in non-quality prices. We find that a higher net growth rate of import markets amplifies the price reduction, whereas a higher market exit rate and overall conversion rate attenuate it. Heterogeneity analysis reveals that the effect of import market adjustment on the exchange rate pass-through to import prices varies significantly with firm size, ownership type, product-level import market concentration, and the degree of product differentiation. These findings provide empirical support for targeted, micro-level exchange rate policies and can help firms optimize their import sourcing strategies.