A Study On The Influence Of FDI On China's Current Account

Since the middle of 1990's, our country has been kept the continuous current account surplus and the surplus has been substantial increase for many years. The goods trade remains surplus, the service trade and income accounts both remain deficit. With international direct investment has remarkable development in the world economy, China has became the one that attracts the most foreign investment of all the developing countries. Up to the end of 2007, the FDI of our country accumulates to USD 7745. 6 billion, continuous and large-scale foreign investment has great influence on our country's current account.FDI affects many components of current account and the influence is mainly by three channels, they are goods trade, royalties and license fees and investment income account. According to the above analyses, the conclusions are as follows: the influence of FDI on goods trade is positive, but the influence of FDI on royalties and license fees and investment income account are negative. The whole influence of FDI on current account is positive, however, we can't ignore the potential crises of FDI on our country's current account. With the opening of service industry and more and more foreign companies enter the domestic service industry, the royalties and license fees will be increasing on the hand and the deficit of service trade will enlarge on the other hand, these both weaken the surplus of current account. Besides, with the scale of foreign capital expands, the outflow of profits and withdraw of foreign capital will be increasing accordingly. So, keeping the reasonable current account surplus and avoiding the potential crises of current account are the key points of adjust FDI policy of our country.This dissertation is made up of six chapters. The first chapter introduces the topic and structure. The second chapter reviews the literatures about the influence of FDI on host countries' current account and income account, and then states the dissertation's study significance. The third chapter describes the current status of our country's FDI and current account, stress on the factors analysis of the influence on our country's goods balance of trade. The forth chapter depicts the trade effect of FDI and the channels of FDI influence on the current account. Combine the descriptive analysis and model analysis, in terms of goods trade, royalties and license fees and investment income account, analyzes the influence of FDI to our country's current account respectively in chapter five. The sixth chapter puts forward policy proposes to the FDI attraction of our country.