China's Foreign Trade Surplus Source: Transfer Of Processing Trade Surplus

Since the 90s of the 20th century, with the rapid development of Chinese foreign trade, the expansion of China's foreign trade surplus and foreign exchange reserves accelerated year after year. Excessive trade surplus will bring a range of issues:the national money supply increases, the increase of domestic inflation; increasing international friction; the reduction of domestic resources available; which is not conducive to the development of long-term economic health. Recent years, the problem also attracted widespread attention in academic circles, the vast majority regard the focus on the discussion of macroeconomic factors, such as Chinese domestic demand, low U.S. savings rate, China's rigid exchange rate policy and so on.This article from the angle of the micro analyzes the sources of China's trade surplus. First, from the overall development of processing trade, we analyzed the main source of imports of processing trade and export destinations and compared the processing trade surplus and the overall trade surplus. After that we found that there may be the situation of trade surplus' transferring from other East Asian economies to China by processing trade. Through the analysis of various industrial sectors, we found the concentration of the processing trade sector, which laid the foundation for the following analysis of the trade surplus'transfer in the communication and office equipment sector. At the same time we also found there may be surplus transfer phenomenon in the non-processing trade sector. And through analyzing the surplus transfer in the clothing and footwear sector which concentrated on general trade, we demonstrated the former phenomenon was existing. Finally, we used trade gravity model for empirical studies, from the perspective of import and export of processing trade, EA dummy variables was introduced in the model to try to prove surplus transfer's existing from an empirical point.Through above analysis, this paper obtained the following conclusions:(1) The main sources of China's foreign trade surplus are the surplus transfer and the processing trade; (2) The sources of imports of processing trade mainly in East Asia, while exports were more prominent in the United States, compared the analysis of sources of FDI, we found that East Asian economies transfer trade surplus to China by 15% to 20% through processing trade. (3) In the clothing and footwear sector concentrated in the general trade, the East Asian economies to China's trade surplus is still more obvious with the phenomenon of transfer, but the time of occurrence compared to the trade sector concentrated in the processing trade was much earlier, and recent years within the sector the surplus transfer was mainly occurred between Italy, France or other developed countries and China. (4) By analyzing the structure of Chinese trade surplus, we found that the inflows of FDI contributed more than 70% to Chinese trade surplus's formation. Compared to the surplus transfer and processing trade, FDI as the representative of the international factor mobility is the key to the formation Chinese huge trade surplus. (5)Under the particular structure of trade surplus, the exchange rate is not significant to solve the trade imbalance problem. Empirical analysis also confirmed this conclusion.