A Study On China’s International Balance Of Payments:Reasons Of Imbalance And Balance Countermeasures

Since the mid 1990s, China’s imbalance of international balance of payments performing as:long-term sustained "twin surpluses" of current account, capital and financial account, and massive increase of reserve assets.The long-term sustained current account surplus is mainly caused by goods trade surplus. The long-term sustained capital and financial account surplus is mainly caused by direct investment surplus. The accumulation of "twin surpluses" makes China’s foreign exchange reserves rising steadily.China’s imbalance of international balance of payments is just like a double-edged sword, the long-term sustained "twin surpluses" not only have positive but also have negative impacts on China’s economy.The long-term sustained goods trade surplus and FDI inflow play an important role in promoting China’s economic growth and increasing employment. China’s foreign exchange reserves increased by a large amount, which make China have strong power in import payments and repayment of foreign debt, foreign exchange market intervention and so on, which is conducive to the promotion of RMB’s international status. Along with China being a major trader in goods, China has gradually became the world’s manufacturing power, and has the world leading level in nuclear power, high-speed rail, new energy and clean energy and other fields. However, along with rapid development of goods trade, China’s foreign trade dependency rising up to a high level, large inflow of foreign capital, investment income deficit increase rapidly, China’s dependency on international market and foreign investment is also increasing. The scale of China’s foreign exchange reserve is too large, but the rate of investment return is too low, funds outstanding for foreign exchange has become the main channel for China’s monetary base supply, which make it difficult for China’s central bank to implement monetary policies. With China’s continual rapid growth of international trade surplus, trade frictions attached China happened frequently, China has been in the top of global trade friction target country for many consecutive years. Therefore, it is very necessary to seek the reasons of China’s BOP imbalance and to find ways and policies to achieve balance.At the very beginning of reform and opening up, China has chosen the processing trade as a breakthrough in the development of foreign trade, which enables foreign capital to combine with China’s abundant and cheap labor force, driving China’s economic growth, increasing employment, making China’s goods trade surplus gradually expanded.In the use of foreign capital, China has chosen foreign direct investment mainly, policy incentives and support, and "super national treatment" to FDI, which make foreign-invested enterprises to become dominant in the processing trade and export, and further expand China’s current account surplus.Internal imbalance is the root cause of China’s BOP imbalance, high rate of savings, coupled with inefficient financial system which can not transfer the savings to investment effectively, and low rate of domestic consumption aggravate China’s "twin surpluses."In addition, the RMB exchange rate, interest rates, GDP growth rate, population age structure and the relevant government regulation and control policies are important factors that affect China’s international balance of payments.The basic path and countermeasures to achieve China’s BOP balance is that China’s economic growth should mainly rely on domestic demand, through reform, transformation and innovation to find sustainable driving force for economic growth, improve income distribution, improve financial efficiency, accelerate reform pace of factor market. And to improve and perfect current account management policies, capital account management policies and foreign exchange reserve management policies. At the same time, through the implementation of "One Belt and One Road" strategy, to promote the balance of China’s BOP.