An Analysis Of Determinants Of The Changes To Current Account Balance In China

In the last few years, the global current account balance has polarized more and more seriously. On the one hand, the current account balance of some developed countries, represented by the United States, has been in huge deficit for a long time; on the other hand, there is a sharp rise in the current account balance of several emerging developing countries, especially of China. And there is a slowdown in world economic growth and a deterioration in global financial environment now. All of these will increase external risks to the economic development of China. At the same time, the serious imbalance of current account has more and more adverse effects on China's economy. The grim reality compels us to do a comprehensive and systematic analysis of determinants of the changes to current account balance in China so that we can formulate suitable macro-economic policies on adjusting current account balance.Therefore, first of all, there is an analysis of characters of the changes to China's current acount balance, separately in terms of phase and structure. Then this paper try to find some possible determinants of the changes to current account balance in China according to the classical theory. After that, this paper conducts a series of empirical investigation of the relationship between the determinants and current acount balance based on the theory of econometrics analysis such as Principal Component Analysis, Unit Root test, Johansen Cointegration test and Vector Error Correction Model.The results show that the major determinants of the changes to China's current account balance include the stage of economic development, RMB exchange rate, the degree of financial deepening, the age structure of population, the balance of government's fiscal payments, the degree of dependence upon foreign trade, terms of trade, the amount of actual utilization of foreign investment and the amount of net foreign assets. And the stage of economic development, the degree of financial deepening, the age structure of population, the degree of dependence upon foreign trade, terms of trade and the amount of net foreign assets also have a strong influence on the short-term fluctuation in China's current account balance. At last, some targeted suggestions are made to promote China's economic growth.