Financial Repression On China’s Current Account Surplus

Since the beginning of the1990s, global economic imbalances has been a compelling economic phenomenon. As a major surplus country, China’s trade surplus began to appear from1994, which has reached154.9billion yuan in2011. Huge trade surplus has made important contributions to China’s rapid economic development, but it also brings many drawbacks. Especially with the outbreak of the global financial crisis, the development of china’s economy is faced with the problem of the unreasonable structure which is increasingly highlighted. So study the causes of China’s trade surplus has great practical significance at the present stage and is also very imminent.On the basis of the existing research at home and abroad and starting from the perspective of financial repression, this paper build a macro analytical framework of savings and investment to explore the impact of financial repression on trade surplus. The article first introduced the concept of financial repression and the characteristics of China’s financial repression. In the environment of financial repression, China’s residents and businesses are subject to varying degrees of credit constraints. Then we demonstrate the transmission mechanism of credit constraints on trade surplus through a theoretical model. The one hand, because the consumer credit markets are underdeveloped, the residents face liquidity constraints, and they can not achieve intertemporal consumption, so there is a situation of high savings and low consumption in China. On the other hand, due to the relationship between "brothers", large state-owned enterprises can often get low-cost loans from commercial banks. Because of the low cost of financing, state-owned enterprises often invest in the project of low return on assets with a lot of money. Despite the high return on assets, small and medium-sized of non-state-owned enterprises face serious credit constraints, and is difficult to obtain credit support. Such credit ration has caused the low efficiency of conversion from saving to investment and the insufficiency of effective investment. According to the CA=S-I, high savings, low investment conditions will inevitably lead to a large number of trade surplus.In addition, we have made an empirical analysis on theoretical perspectives using the2004-2010inter-provincial panel data model. The results showed that financial repression is an important reason for China’s continued trade surplus. Finally, the article made a number of specific policy proposals on how to address the economic imbalances in China.