The Analysis Of The Cause And Effect On Foreign Exchange Reserves Of Chinese Bi-surplus

Since the 1990's, the current account and the capital account both have kept surplus in China, except for certain years. Especially since Twenty-First Century, there has been a trend that the scale of surplus becomes much larger. Impelled by the bi-surplus, the foreign exchange reserves of China increase quickly, which exceed one trillion dollars now. China has become the largest foreign exchange assets holder, and all things show that the situation won't change in a short time. The huge surplus is significant to tone up the national power of China, as well as to enhance the ability of resisting exterior impacts. However, it also reflects that there are some problems existing in China's macro-economy. On the one hand, The main part of China's foreign exchange assets is American dollars, but in view of the dollar depreciation at present, it will suffer great losses. On the other hand, the management of the foreign exchange assets is faced with a challenge, too; Meanwhile, both the monetary policy and the exchange rate policy will be confronted of great pressures, which all will give a significant influence on the persistent growth and the balanced development of China's economy.Based on the attracting foreign investment theory of developing countries and the theory of national income determination, this paper provides an economic framework to analyze the bi-surplus, and then to find out the reason why there has been a bi-surplus in China for over ten years. This paper also uses the causes of bi-surplus to construct an empirical research model and then to find out the influence on the growth of foreign exchange reserves, analyze the return of exchange reserves. In addition, some policy suggestions are made pertinently in this paper relating to reduce the bi-surplus, slow down the growth of foreign exchange reserves and reinforce the management of it.