Research On The Effect Of FDI To China's International Balance Of Payments

Since reform and opening to the outside world, China has taken an aggressive strategy to attract foreign direct investment (FDI). FDI enters our country with a high speed, especially after 1992. The effect of FDI to China's economic development is large, and FDI has already been an important part of the economy. With the continuous inflow of FDI, China's international balance of payments structure has been changed, mainly for the current account and the capital and financial account's "double surplus" structure, this issue began to draw domestic scholars' attention, and there have been some outstanding achievements, but it is still worthy of researching the question. So there is an important realistic and academic significance to research the effect of FDI to the international balance of payments in an uniform analytical frame based on the theories of FDI and international balance of payments.The paper firstly introduced the theories about the effect of FDI to China's international balance of payments, and the achievements of Chinese scholars achieved. Secondly, it introduced the overview of China's current situation of using FDI and pointed out that FDI has entered the stage of adjustment and improvement. According to China's practical situation, the author analyzed the effect of FDI to each item of balance of payments. FDI inflow itself is the main reason of the capital and financial account surplus, goods trade is an important factor affecting the current account, the trade balance of foreign investment enterprises which engaged in processing trade play an important role in China's trade, while the profit repatriation led to deficit of investment income item. Then the author concluded that FDI affected the current account and the capital and financial account of balance of payments statement mainly by trade flow and capital flow. The author used time series data from 1982 to 2008 of balance of payments statement, processed the data by using technology based on Co-integration dynamic model study focused on the impact of the "double surplus" structural factors, researching the effect of FDI to each item of balance of payments. At last, the paper put forward some advice on how to adjust the international balance of payments by FDI based on the above analytical framework, including policies to processing trade, "going out" strategy and the using of foreign exchange reserves.