A Study On FDI, Processing Trade And China’s Double Surpluses In Balance Of Payments

In China’s balance of payments, the current account has maintained surplus since1994, and the capital and financial account also maintained surplus since1993(except1998). In the history of international economy, China’s unique in maintaining double surpluses in balance of payments for more than10years.In recent years, even experiencing the U.S. subprime mortgage crisis and the global financial crisis, China also maintained a strong double surplus pattern in balance of payments. After analyzing each year’s Balance of Payments, we can say, in the China’s double surplus pattern of balance of payments, the current account surplus mainly comes from surplus in merchandise trade, especially merchandise trade in the way of processing trade which accounts for half of total merchandise export; the capital and financial account surplus mainly comes from foreign direct investment in China (FDI)of direct investment account. Therefore, China’s double surpluses in balance of payments are closely linked with FDI and processing trade. In China, absorbing FDI and developing processing trade are complementary to each other, on the one hand, most FDI in china is put in manufacturing sectors, and the exports of manufactured goods in these sectors are mainly in the way of processing trade; on the other hand, generally speaking, China’s processing trade is led by FDI.The sustainability of China’s double surplus pattern of balance of payments is a common concern of domestic and foreign scholars. China’s double surpluses in balance of payments are not only a phenomenon of imbalance in the internal and external economy of China, but also a phenomenon of imbalance in world economy. This phenomenon is the outcome of evolution of international division of labor since1990’s and the actual performance of China’s participation in the international division of labor with its comparative advantage of labor force. The dissertation argues that the sustainability of China’s double surpluses in balance of payments mostly depends on sustainability of China’s comparative advantage of labor force. In China, with the appearance of "Lewis turning point", the double surpluses in balance of payments should converge gradually. At present, it is a subject worthy of study that,on the one hand,how to continue to participate in international division of labor with comparative advantage of labor force for China, and on the other hand, in China, how to speed up industrial restructuring and upgrading, and ultimately balance the internal and external economy by consumer-driven economic growth. In addition, China’s continued double surpluses in balance of payments inevitably bring about China’s large foreign exchange reserves, how to manage foreign exchange reserves is also a subject worthy of study.The dissertation firstly discusses the effects of FDI and processing trade on China’s current account surplus and capital and financial account surplus of balance of payments respectively, and then further analyzes the phenomenon and sustainability of China’s double surpluses in balance of payments, lastly the dissertation puts forward countermeasures concerning adjustment of China’s balance of payments. The dissertation is structured as follows:the first chapter introduces the research background and significance, the reviews of domestic and foreign research, the ideas and contents of the dissertation, etc; the second chapter reviews the theories concerning FDI, processing trade and balance of payments; the third chapter discusses the relationship between FDI and capital and financial account surplus of China’s balance of payments, firstly analyzes the situation of FDI in China, and then analyzes the source of capital and financial account surplus of China, and then analyzes concretely and empirically the contribution of FDI to capital and financial account surplus of China, and lastly analyzes the mechanism of capital and financial account surplus mainly coming from FDI; the fourth chapter discusses the relationship between processing trade and current account surplus of China’s balance of payments, firstly analyzes the situation of processing trade in China, the factors (including FDI) affecting China’s development of processing trade, and then analyzes the source of current account surplus of China, and analyzes concretely and empirically the contribution of processing trade to current account surplus of China, and lastly analyzes the mechanism of current account surplus mainly coming from processing trade; the fifth chapter further analyzes the phenomenon of China’s double surpluses in balance of payments, firstly analyzes the phenomenon of China’s double surpluses in balance of payments on the background of imbalance of global economy, indicating the real reasons of China’s double surpluses in balance of payments, and then discusses the subject of increase of China’s foreign exchange reserves caused by double surpluses in balance of payments, lastly analyses the sustainability of China’s double surpluses in balance of payments, pointing out the double surpluses of China’s balance of payments should converge gradually. The sixth chapter puts forward countermeasures concerning adjustment of China’s balance of payments under mutual benefits and win-win strategy of opening up, mainly from six perspectives, including continually taking the usage of comparative advantage of labor force to participate in the international division of labor, promoting China’s human capital, transforming the pattern of economic growth, improving the formation mechanism of RMB exchange rate, managing the foreign exchange reserves at different levels, expanding China’s direct investment to foreign countries, etc.