Foreign Direct Investment Analysis Of The Potential Dangers Of China's International Payments

Since reform and opening up, foreign direct investment (FDI) played a tremendous role in China's economy. FDI becomes an important component of our economy. After European currency crisis, the Latin American balance of payments crises (BOPC) and particular the 1997 Asian financial crisis, the international community changes the research perspective of BOPC, and the negative role of FDI in international balance of payments crisis has gradually emerged. As far as our country, FDI has penetrated into all aspects of the development of our economy, and the impact to the BP is from the current account to the capital and financial accounts, whose force is beyond our imagination. Chinese scholars have already begun research on FDI's negative role on our BOP, and produced some excellent results, but the study has not form a complete theoretical system. In this context, the author combines the lessons of the crisis states and the relevant literature to make a summary of the theory about BOPC which evoked by FDI. At last, I make a discussion about FDI's potential dangers to China's international balance of payments and the concrete measures.The paper firstly introduced domestic and abroad theory on balance of payments, balance of payments crises, international finance and international direct investment. In conjunction with these theories, the paper summarizes the theoretical framework. Secondly, the paper describes the current situation of China's use of FDI and analyzes the China's international balance of payments account's changes over the years. Then make a discussion on the relationship between FDI and BOP, That is, the inflow of FDI is the main reasons for the capital and financial account surplus. Specifically, the export of FDI enterprises (Multinationals) is the largest component of our whole export, and the profits remittances of Multinationals lead to the deficit of receipts account. FDI has a significant impact to the BOP, once there is reversal of the economic situation or a sudden accident, the impact of FDI enterprises hedging measures will worsen the balance of payments. Finally, it raises some suggestions to reduce the potential dangers. That is, strengthen domestic enterprises' capability for independent innovation; establish BOP crisis warning indicator system. In external economy, promote the Implementation of "going out" strategy to offset the FDI's impact to our BOP.