Exchange rate disconnect and financial constraints —evidence from Chinese firms

•This paper provides sector- and firm-level evidence that the response of exports to exchange rate movements depends crucially on the level of financial constraints.•For sectors with large financial constraints, the response is very small, whereas, for less financially constrained sectors, the response can be much larger, with the estimated elasticity decreasing with the sector's degree of financial constraints.•At the firm-level, financial constraints affect the firm's response to exchange rate shocks at both the intensive and the extensive margins.•The mitigating effects of financial constraints are more relevant for private firms, small firms, and firms with high interest payments.