| ’Double Surpluses’has been a usual issue in China’s balance of payment. Since1990s, surplus in current account (especially goods) and capital account (mainly direct investment) has lasted long. Over20years, China only experienced a deficit in the capital and financial account in1992and in1998and one in current account in1993.’Double Surpluses’brought great economic benefit, yet problems to our macro-economy. It led to constantly accumulation of foreign reserve and great pressure on the appreciation of Renminbi (RMB). However, the hedging action of the Central Bank of China would lead to the problem of excess liquidity, which would cause the inflation and bubble in property market, finally weaken the effect of macro-control and even let the control lose its independence. Meanwhile, the huge amount of foreign reserve was mainly invested or valued in US dollars. Alongside the devaluation of the US dollar, the reserve would devalue. As the global economy deteriorates and trade deficits of the developed countries expanding, criticism and complaints have appeared that RMB should appreciate to enhance the fairness of global trading.The main content of this article was listed as following:Chapter1analyzed’Double Surpluses’in China’s balance of payment.1. Firstly, since2005,’Double Surpluses’were mainly due to the current account surplus, of which80%or more came from commodities trading. Half of the exporting was from the processing trade, especially processing enterprises invested by the foreign merchant. Secondly, services trade deficit has lasted for many years and the number of deficit was ever expanding. Recent ten years, the income items became positive only from2007to2009.2. Direct investment surplus is the main source of the capital account surplus. It has been a long time that the growth of China’s direct investment in foreign countries, is much smaller than that of the direct foreign investment in China, which lead to the huge surplus in direct investment. The amount of direct investment took only6%of the total foreign investment made by China. Now China has more than4000billion international investment, of which70%are foreign exchange assets. The vast majority of the investment was used to buy the national bonds of the developed countries like the United States. The return rate of these bonds has low return rate.Chapter2constructed a model to analyze the’double surpluses’. Based on the current condition of’Double Surpluses’and Consumers’intertemporal optimal selection model, the author tried to research on the intertemporal consumption and trading model in the open economy, and also discussed about the surpluses on the current account and the capital account from the perspective of flowing of intertemporal capital. Still, a theoretical model was built to analyze the’Double Surpluses’in China.Chapter3focused on the international environment of’Double Surpluses’and its causes1. While urbanization and industrialization in China are proceeding rapidly, de-industrialization occurred in developed countries. On one hand, the shifting of manufacturing abroad would bring the developed countries deficit in commodities trading, and the service can not be fully tradable. Thus it is easy that there were deficit in their current account. On the other hand, relied on the reform and opening on policy, China took the developed countries’orders and enlarged its industrial capacity. Moreover, the export-oriented preferential policies have attracted a large amount of foreign capital into China, and formed the’Double Surpluses’.2. The global production chains made China as the’world’s factory’. Low labour cost and increasing manufacturing capacity made mainland China a perfect place for multinational enterprises to build factories. A lot of factories in the developed countries or those in the East Asian Economic Powers’Four Little Dragon’wer moved to the mainland China. So did the surplus.3. China implemented export-oriented preferential foreign capital policy. In export-oriented achievements guidance, the Chinese government took a few charges like underestimated RMB, under-valued resource, favorable tariff policy to encourage export and suppress import, which expanded the surplus. Besides, the superiority of foreign capital over domestic capital attracted a lot of foreign investment and expanded the surplus of direct investment.4. Domestic consumption was relatively insufficient. The unfair distribution of resource distribution in the developing process from planned economy to market economy caused the unbalanced development and unfairness in income distribution. Although the resident’s savings rate is high, the percentage of residents’savings accounts only a small part in the national total savings. Thus the social average consumption tendency and marginal propensity come down. At the same time, the ever-increasing investment dominated by the government and state-owned enterprises enhanced the valid supplies, which finally led to relatively insufficient consumer demand. 5. Converting domestic savings into investment needs some international payment channels, which expands the capital surplus of China. The financial market of China is underdeveloped, but governments at all levels were willing to attract more foreign investment and tend to provide various kinds of preferential policies. The domestic savings surplus is not through the domestic financial market directly into domestic investment, but need to make their way to the international financial market, so as to make up the form of FDI backflow actual domestic investment-savings gap. This has formed the curve way that the domestic savings finance the foreign investment. On one hand, China has become the capital exporter by accumulating foreign exchange reserves from the commodities trading and invested primarily in foreign bond market and money market. On the other hand, financed by Chinese reserve, the FDI entered the Chinese capital market again, mainly in the form of equity investment of Chinese enterprises.Chapter4analyzed the effect, continuity and rebalancing of’Double Surpluses’1. Economy influence made by Double surplusesDouble surpluses cause huge foreign exchange reserves accumulation. Under control of the hedge intervention mechanism, the exchange rate formed the RMB appreciation. Foreign exchange has become main source of excess liquidity of China. Raising the reserve deposit ratio and issuing central bank bills can only temporarily seal excess liquidity, but not eliminate inflation and asset price bubble that excess liquidity brought. Under the unchanging’Double Surplus’condition, the cost of inhibiting the excess liquidity grow higher and higher, and the independence and effectiveness of China’s macroeconomic regulation and control was severely threatened. As American adopted the strategies to devalued dollars, the actual purchasing power of China’s foreign exchange reserves tends to drop quickly, and the national wealth from commodities surplus tends to be devalued as well.2. The sustainability of’Double Surpluses’In the short term, trade surplus would exist as a rule, but gradually reduce in scale. Due to the obvious advantage in export, Chinese government and the enterprises would not easily give up the expanding trade surplus advantage. The export-driven economic transformation and the consumption growth would take some time. Thus, the export dependence would not disappear soon. However, since the economic growth prospects in China are relatively good, the rate of return on the investment of Chinese market is still competitive. Chinese market is still attractive to the foreign capital. Therefore, the surplus on the financial items would not be narrowed soon. But in the long run, global economic imbalances cannot last forever. The western countries need to tighten fiscal spending debt, which would cause inevitable shrinking in the overseas demand and huge strike to Chinese export in the future. Moreover, the trade surplus may fell back quickly. All these issues would force China to make adjustments on the export-oriented economic structure.3. The rebalancing mechanism of’Double Surpluses’Surplus brought both economic difficulties and benefits in making China capable to adjust their own economic and financial strategies. We should improve the RMB exchange rate formation mechanism reform, expand exchange rate flexibility. Besides, we should take the opportunities that the international monetary system transferred from the USD standard to diversification of multiple currencies to improve the RMB internationalization and get ride of the dependence of the US dollars. Moreover, we need to expand domestic consumption; adjust the foreign trade policy of’foreign exchange earning; strengthen the foreign investment; expand the scope of application of foreign exchange reserves and increase investment returns.Chapter5analyzed the empirical test of the influence of RMB exchange rate on the balance of tradeThe vector regression model (VAR) model was adopted, a co-integration test, error correction, impulse response and variance decomposition were used. According to the results of the test, the influence of exchange rate of the RMB on the balance of the trade was not significant, the appreciation of the RMB in short-term can restrain trade surplus from widening. But in the long run. The influence of the exchange rate of the RMB on trading was uncertain. The effect depends on the supply and demand elasticity of import and export commodity. Foreign demand exerted greater influence on Chinese trade surplus than the RMB exchange rate did. The exchange rate of the RMB was not the main cause for the trade surplus expansion. Growth of domestic demand had no significant effect on trade surplus level.The appreciation of the RMB will not solve the trade imbalance between China and other countries.Chapter6analyzed RMB exchange rate determination mechanismAt present, to keep a stable exchange rate can help strengthen the world’s confidence to the economic growth prospects and RMB. Still, it would be helpful for the transformation of the export-oriented economy and the propulsion of RMB internationalization strategies. Besides, to ensure RMB exchange rate stability did not mean to crucify, but to build up a market determination mechanism for RMB exchange rate, through enlarging the trading band margins of RMB on the basis of improving the international capital flow monitoring capabilities. In the process of marketizing RMB exchange rate, China must remain effective control for speculative capital, and promote the marketization of interest soon.Chapter7analyzed Choice of RMB exchange rate regimeThe present management for floating exchange rate system accord with the macro economic interests. It can help release the adverse effect that RMB exchange rate fluctuations would bring to Chinese economy. At present, Reform measures like the marketization of rates and exchange rate, the free flow of capital is in a crucial stage. Thus, a stable RMB exchange rate expectation and flexible management of exchange rate system are desperately needed.Chapter8pointed out the inadequacies of this article1. Because of my limited knowledge, the understanding of the theoretical model is not enough thorough econometric model is a bit simple, empirical analysis conclusions deviate from the correct direction may be due to data acquisition, processing.2. This article does not establish innovative econometric model of the RMB exchange rate on trade balance, only the use of existing mature model to an empirical test, do not use more accurate models to verify the impact of exchange rate on China’s trade balance.3. Since the choice of exchange rate policy by the greater impact on national policies and economic reform path, or even involved in the international political factors, so this article does not establish a theoretical framework, analysis of the RMB exchange rate determination mechanism only from the empirical analysis of the RMB exchange rate and trade balance point of view, qualitative assessment of the decision mechanism of the RMB exchange rate. |
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