The Impact On China's Balance Of Payments From Multinational Corporations

Multinational corporations (MNC) have been increasing direct investment in China since 1990s, making China the largest FDI inflow country in the developing world. The coming of the multinational companies brought remarkable and complex influence to China's balance of payments, which has been main reason of the 'double surplus' phenomenon of China.MNCs have both positive and negative impacts through various mechanisms on the home country's balance of payments. This paper proposes an overall dynamic mode to analyze multinational corporations' overall impacts to the home country's balance of payments, and explores the long-term trend of the overall impacts based on the mode. Then, we use this mode to demonstrate the impacts MNCs bring to China's balance of payments based on the facts of China and predict the future development of the impacts.According to the research, whether the MNCs' balance net effect is positive or negative depends on the volume of capital flow, foreign trade conditions and the profit outflow. For China, MNCs brought positive effect to the balance of payments in recent years, mainly because MNCs contributed large amount of capital inflow and trade surplus to China. Although MNCs' profit in China kept increasing, China's investment profit account turned surplus in 2005. Therefore, MNCs' net effect to China's balance of payments will go on to keep positive in the next one or two years. However, in the long run, China still has some potential risk to suffer balance crisis, which need us to take some proper measures to prevent it from happening.This paper enables us to answer the following questions: 1, How to estimate the net effect MNCs bring to the home country? 2, How to analyze the long-term trend of this balance effect? 3, What role did MNCs play in China's double-surplus phenomenon? 4, What are the possible changes of MNCs' balance effect to China in the next a few years? 5, Will China suffer balance crisis in the future?We hope this paper show a clear picture of MNCs' balance effect and make some effort to keep a sound long-term development of China's balance of payments.