Influence Of China's Financial FDI Inflows On Financial Services Trade

In the background of economic globalization and with the increasing importance of service industry in the overall economies and the rising status of financial services industry in whole services sector,financial foreign direct investment(FDI)has become an important part in many countries.After China's entry into WTO,the scale of using FDI is increasingly expanding and financial sector FDI is inflowing gradually,which has an inevitable impact on China's financial services trade.The paper uses literature study,comparative analysis,quantitative analysis,theoretical analysis and empirical analysis to study the impact of China's financial sector FDI inflows on China's financial services trade.In the process of theoretical analysis,the research analyzes the 6 classical theories as well as two representative theories of investment-trade relation-investment-trade substitution theory represented by Robert.A.Mundell and investment-trade complementary theory represented by K.Kojima.The paper also uses cointegration test to analyze the current situation of China's financial services trade and financial sector FDI inflows as well as the likely impacts of FDI on China's financial services trade.Through the empirical analysis of quarterly data of China's actual usage amount of financial sector FDI inflows from 2006Q1 to 2016Q2 and quarterly data of import and export of China's total financial services trade as well as its two components,including financial services trade(Banking and other financial services)and insurance services trade from 2006Q1 to 2016Q2,the paper draws a conclusion that there's a long-term,stable,equilibrant and complementary relation between China's financial services export and financial sector FDI inflows.However,the impact of China's financial sector FDI on financial services import is weak,mainly resulted by the low relation between FDI and insurance services import.The paper also uses principal component analysis,adding other independent variables and comprehensively estimating the impact of China's financial industry FDI inflows on China's financial services trade exports.China's financial industry FDI inflows is an important factor influencing China's financial services trade.Besides,ridge regression model is used to obtain the equation of China's financial services export and multiple independent variables including China's financial sector FDI.Through the comparison of ridge regression equation and cointegration equation,the research considers the ridge regression equation as a more effective model to explain the impact of China's financial sector FDI inflows on China's financial services export.Combining theoretical analysis and empirical analysis,the research reaches a conclusion that there's an obvious complementary relation between China's financial sector FDI inflows and China's financial services export.China's financial sector FDI inflows haven't substituted China's financial services import.The paper proves that the relation between FDI and trade fits investment-trade complementary theory represented by K.Kojima from this point of view.Therefore China should take in financial sector FDI inflows reasonably and make best use of them to develop financial services trade.The paper proposes 6 suggestions,offering proposals and expectations of better use of China's financial sector FDI inflows to improve China's financial services trade from various aspects.The research has 4 innovations: in addition to the analysis of overall financial services trade,the research also analyzes the impacts of FDI inflows on financial services trade(Banking and other financial services)and insurance services trade respectively.Explain and analyze comprehensively the mechanism of how China's financial inflows affect China's financial services trade.The research also investigates both static and dynamic states of the two variables.The addition of principal component analysis and ridge regression which includes other independent variables helps draw a more comprehensive conclusion.