Research On External Imbalance Of China Finance

Based on the methodology which is provided by Financial Coordination theory, this article analyzes the relationship between external imbalances of China Finance and inputted inflation regarding China current inputted inflation phenomenon as breakthrough point.The result shows that the main reason that resulting in China current inputted inflation is China external finance imbalances.In particular, in the present system of fixed exchange rates, the large number of foreign exchange accumulated by the huge surplus lead to the huge strain of inputted inflation. Therefore, to solve this problem, China must fundamentally reverse the situation of external imbalances.External imbalances of China finance is related to its external influence. The U.S. dollar-dominated international monetary system, which created a new pattern of international division of labor, is the main external cause of external imbalances. The United States is at the top position of the international division of labor, it has transferred many lagged manufacturing industry to the newly emerging developing countries led by china through the way of a large number of foreign direct investment, and vigorously develop the financial industry to create a strong financial advantage, and provide services for global financial insurance. However, with a large amount of the direct investment, the newly industrialized countries led by China and regions have become the "factory of the world", which provides processing manufacturing products with low value-added, high pollution and high energy-consuming for World. This causes large trade surplus and Capital-Financial Account surplus. The dollar-denominated foreign exchange reserves accumulated by the huge surplus are attracted by U.S. financial markets. Meanwhile, it flows into America as some kind of bonds and other securities and so on, not only maintaining America's low savings and high consumption, but also maintaining the U.S. trade deficit, current account deficits and budget deficits. In addition, the United States transfers funds which comes from china and other countries with the way of the direct investment to China to obtain high returns brought by China economic growth. In fact, China and the United States, under the U.S. dollar-dominated international monetary system, has formed a cycle of the United States Securities Investment in China and U.S. maintaining the trade deficit. Through the analysis of game theory, this article thinks that the cycle has to continue under the U.S. dollar-dominated international monetary system. Therefore, in order to reverse fundamentally external imbalances of China finance, China should actively promote the reformation of the U.S. dollar-dominated international monetary system, drawing on international experience and lessons of dollars, yen, pound, mark, the euro and other currencies, to speed up the reformation of the internationalization of RMB.This article, through theoretical and empirical analysis, demonstrates that China external finance imbalance is caused by internal reasons such as China high savings, high investment and low consumption. The paper argues that China high savings, high investment, and low consumption in certain external environment contribute to the external finance imbalance together. First of all, high saving and a lot of foreign direct investment in China formed a high investment, which lead to a lot of manufacturing products under the influence of the external environment such as the export-oriented policies and irrational economic structure and so on.. At the same time, a serious of problems such as the flaw of China social security system, the unreasonableness of the distribution system and the insufficiency of transferring from high savings to consumption caused residents' consumption shortage. A direct manifestation of consumption shortage is excess capacity, and is also characterized by high savings, so the situation of overcapacity have to continue and finally performed as the external finance imbalance. This paper also analyzes the relationship between China high savings rate and China external imbalance by empirical methods, whose result is consistent with the results of theoretical analysis. To solve the problem of high savings, high investment and high consumption, This paper argues that China should reform distribution system, change the style of economic growth., perfect social security system, speed up the interest rate marketing reform..This article, through theoretical and empirical analysis, proves that the insufficiency of China financial development is the internal reason of China external finance imbalances. It also argues that the deficiency of China financial development, to some extent, not only exacerbates China high savings, low consumption and high investment, but also determines that China "world factory" role that caused China large trade surplus. The deficiency of China financial development, to some extent, determines China Capital and Financial Account surplus. The empirical analysis result also confirms that inadequate financial development of China is mainly caused by China external finance imbalance. For this, the article pointed out that, to reverse China external imbalance, should optimize the financial structure, enhance China financial development, and improve China financial development degree.