The Research On Adjusting China’s Balance Of Payments By The Fluctuation Of Rmb Exchange Rate

Since China’s reform and opening up three decades ago, our economy already experienced a rapid growth, total volume of imports and exports kept growing, imports and experts totaled3.6421trillion dollars in2011, grew by22.5%,favorable balance of trade rose to$155.14billion. At the same time China also is one of the most countries which attract foreign investment in the world, actually utilized value of FDI amounted to$116.01billion in2011,9.72%more than the previous year. Huge trade surplus and capital inflows make Chinese international balance of payment to have the situation of current account and capital account surplus. But since July2005,we reformed the RMB exchange rate regime to gradually make the RMB exchange rate more flexible and Constant After Winter, whether the RMB exchange rate fluctuations can effectively adjust double-surpluses in China’s balance of payments varies from person to person, which has not formed unified final conclusion.This paper is different from the former research such as elasticity approach, monetary approach and the other traditional theory of balance of payment, considering trade account and capital account together, based on the traditional Mundell-Fleming Model, selecting the statistical data from1982to2010, establishing the revised Mundell Fleming model under the condition of interest rate control, further putting to use Johansen Cointegration test, empirical test the model’s conclusion. The result shows that we can adjust China’s vast surplus of balance of payments by the RMB exchange rate fluctuations, but the method is not effective, government expenditure and foreign direct investment has positive correlations with China’s balance of payments, and government expenditure’effect in adjusting balance of payments is better than that of foreign direct investment. In addition China’s gross domestic product and the trading partners’gross domestic product which have influence on China’s balance of payments are the most important explanatory variables, improving China’s gross domestic product can boost import demand, the major trading partners’recession may reduce export demand of our country, then affecting balance of payments. This paper is divided into six parts:Part Ⅰ introduces background and significance of the thesis, domestic and overseas literature review, research contents and methods, as well as innovations and weakness of the thesis.Part Ⅱ introduces the theories of impacting on the balance of payments by the fluctuation of exchange rate, including multiplier analytical approach, absorption analytical approach, monetary analytical approach, elasticity analytical approach, traditional Mundell-Fleming Model, and the revised Mundell-Fleming Model under the interest rate control condition. We analysis basic elements of the above theories briefly. These theories provide an important theoretical basis for adjusting the balance of payments and explaining the reason why China’s balance of payment is discordance.Part III analyzes balance and structure of basically account including current account, capital and financial account, net errors and omissions account and so on in balance sheet. We realize the condition of China’s balance of payments, and then qualitatively analyzing the influence on the China’s balance of payments by the fluctuation of RMB exchange rate.Part IV bases on the revised Mundell Fleming model under the condition of interest rate control which has been deduced above, establishing econometrics model, selecting statistical data of China’s gross domestic product, government expenditure, foreign direct investment and so on from1982to2010, putting to use Johansen Cointegration test, testing the model’s conclusion, and comparing with each explanatory variable’influence on balance of payments.Part V is policy suggestion, according to the empirical result, under the situation of balance of payment surplus for relieving and improving balance of payments. We should implement tightening fiscal policy, optimize the structures of government expenditure, ensure and improve people’s livelihood. In addition we implement the strategy of "going out" actively, make use of foreign direct investment reasonably, promote the reform of mechanism for setting the RMB exchange rate, expand domestic demand, and strengthen endogenous powers of economic growth.Part VI is conclusion, summing up the whole paper briefly.