A Study On The Impact Of FDI On The Balance Of Trade Of China

Foreign direct investment (FDI), which was initiated in the middle of the last century, has been flowing into emerging industrialized nations and developing nations including China on a large scale since 1980s. The inflow of FDI imposes significant impact on the international balance of payment of the host country. Meanwhile, the subjects of FDI and the international balance of payment have drawn universal attention of the academic community. However, early researches were conducted and expanded on the following two aspects: 1. the approach of FDI and 2. the approach of international balance of payment. The two approaches were developing only in its specific area. The FDI volume that China actually used in practice has exceeded 600 billion US dollars since the reform and opening up. In 2007, China's trade surplus topped 260 billion US dollars. FDI has imposed a critical impact on the international payment of China, particularly on the balance of trade. In this regard, it's of enormous significance in both theory and practice to link FDI research with the research of international balance of payment, in particular with the research on the balance of trade and expand researches on the balance of trade of China affected by FDI under the integrated framework.This dissertation, first of all, puts forward the background, significance, purposes, key approaches, applied research methods and the innovations in the researches. Then the paper reviews and evaluates the domestic and foreign approaches on how FDI imposes impact on the balance of trade in the host country. The paper also focuses on the researches in the mutually beneficial mechanism of how FDI and the international trade of the host country interact with each other, the analysis on the trade substitution and creation effects of FDI on the host country and uncertainties on the balance of trade of the host country imposed by FDI.Secondly, this dissertation makes concrete analysis on the following two aspects by taking advantage of authoritative and reliable statistics, tons of charts and diagrams and empirical panel-data analysis to conduct researches on how FDI affects the trade volume and trade structure of China from the perspectives of regions and industries.In the aspect of trade volume, the dissertation briefly reviews the development history of FDI and the balance of trade in China. Then, the dissertation analyzes the relations between the balance of trade of china and the FDI stock and the relations between the balance of trade of foreign invested business and FDI stock.In addition, the dissertation also explores the impact of FDI on the balance of trade in the East, Central and West China through classic approach models and empirical panel-data analysis. Evidences prove that FDI and the trade volume as well as the balance of trade of foreign invested business are in positive correlation respectively. East China is the key source of origin of China's absolute trade surplus (export-import) while Central and West China are the sources of origin of China's relative trade surplus. (export/import)In the aspect of trade structure, first of all, the dissertation explores the changes of China's trade structure through the analysis of changes in the structure of primary and processed products and the analysis of changes of CTB of different industries. In the impact test, the dissertation simultaneously introduces FDI variable and domestic investment variable to demonstrate that FDI serves as a key drive for China's trade surplus compared with the domestic investment. In the impact factors test, the outcome indicates that FDI creates trade surplus mainly in the industries where the level of expertise slightly differs between foreign investment and domestic investment, export-oriented industries and labor intensive divisions of capital and technology intensive industries as well as labor intensive industries while domestic investment creates trade surplus mainly in the industries where the level of expertise largely differs between foreign investment and domestic investment and capital intensive industries.In conclusion, based on the full support of the positive role of FDI in creating China's trade surplus the dissertation further points out the limitations of FDI on the balance of trade of China and emphasizes that the expansion-oriented FDI leads to the absolute balance of trade rather than relative balance of trade. The dissertation also proposes the idea of shifting from the emphasis on the balance of payment in the total amount to more emphasis on the structure of the balance of payment, attaching much importance to the sustainability of trade account imbalance rather than the size and the duration of the imbalance itself. In addition, the dissertation also stands for the position that trade surplus is the outcome of the joint efforts by both foreign companies in China and domestic companies rather than the efforts of the domestic companies alone. Based on these new ideas, the dissertation puts forward a series of suggestions and policies.