The Research Of The Impact On The South Korea’s FDI In China To The Bilateral Trade Imbalance

With the further development of China’s reform and opening, China’s trade with othercountries is becoming more closely, foreign direct investment to China is even expanding everyyear. In its international trade with other countries, China shows a large amount of deficit to itsneighbor South Korea, the deficit does not change but has a trend of expansion. This paperargues that South Korea’s FDI in our country is an important cause of the deficit to Korea, Koreamainly invest in the manufacturing processing and assembly areas, most Korean companies inChina are Korean-owned enterprises, their production equipment, spare parts are mostlyimported from the parent companies, and the finished products are rarely sold back to SouthKorea, most of them are sold in China and being exported to Europe and other countries whichleads deficit in our trade account to occur.This paper describes the development process and nowadays situation of Korean investmentin our country, as well as the development and features of bilateral trade.Further introduces thestatus of the trade imbalance between China and Korea, questioning the traditional understandingthat vertical division of labor between industries cause the trade deficit of China to Korea andanalyzing the possible reasons by combining the new characteristics of trade in this stage. Itpoints out that FDI is an important cause of the trade imbalance. By setting models and usingempirical tests analyzes, it points out that Korean FDI enlarges import and export scale and tradeimbalance gap in long run,however, in short run,the deviation of the Korean import and exportadjustments to long-run equilibrium fast, while the deviation of the imbalance gap slowlyadjustments to long-run equilibrium.It finally proposes relevant policy recommendations for bothcountries, noting that both countries should treat this deficit properly and make the no efforts torealize trade cooperation at a higher level.