.90 's Balance Of Payments: Reasons, Trends And Policy

From 1994 to now, China' s Balance of Payment (BOP) has been featured by current account and financial account surplus, which brought lots of concerns both from academic and government. Due to its few appearance, this kind of BOP structure is of little discussions in theories. However, the reasons behind this structure, the trend of this structure in the near future, the implications of this structure for macroeconomic stabilization and economic growth and rational countermeasures to this structure urgently need to be understood. In this dissertation, by combining China' s stylized facts behind BOP and related theories, a empirical model with theoretical base is established to explain the main reasons of China' s trade surplus. Other issues, such as reasons of China' s financial account surplus, trend of China' s BOP, implications of China' s BOP structure for macroeconomic stabilization and economic growth, and rational countermeasures of government are also discussed.Three main parts organize the dissertation; the first part is about China' s trade surplus in 1990s. Based on China' s stylized facts behind foreign trade and a brief review of trade theories in new classicalism, Keynesianism, monetarism and intertemporal approach of current account, a theoretical model is built. In this model, relative price, saving rate, technology progress rate in tradable department comparing with nontradable department, and foreign direct investment are all included to explain trade balance. Comparing 1985-1993 period with 1994-2000period, we found that high level of FDI inflow after 1993 and comparative rapid technology progress rate of tradable department comparing to nontradable department are main reasons driving China' s persistent trade surplus after 1994. Without a modest adjustment of exchange rate, China' s trade surplus will continue although it' s harmful for macroeconomic stabilization and economic growth.The second part is mainly about China' s financial account surplus and accumulation of foreign reserve. Due to quite different reasons behind different kinds of capital flows, foreign direct investment, portfolio investment and foreign reserve cannot be analyzed in a same framework, therefore, different kind of capital flows are discussed respectively. Regional advantages are main reasons inattraeting foreign direetinvestment int0 China:diserePaney between domestie andforeign interest rate,different Poliey treatments towards domestie ownedenterPrises and foreign owned enterPrises,and wealth transfer are main reasonsdriving illegal eaPital flightand eaPital flows in Portfolio investment aeeountandother investmentaeeount.The aeeumulation of foreign reserve 15 ratherPassively,it'5 the result of eurrerit aeeount and finaneial aeeountsurPlus,aswell as a refleetion of exeessive suPPly in foreign exehange market.In the nearfuture,evidenee from different resourees show that China will hold ius traditionaleomparative advantages in attraeting foreign direet investment,and it will bereinforeed by China'5 aeeession into WTO and seale of eeonomy.The direetion ofillegal eapital flows or eapital flows in portfolio investment aeeount and otherinVestmentaCC0llntbe a strong factorean hardly be judged,however,exehange rate exPeetation willin driving these kinds of eaPital flows.Foreign reserve,asaabsorber of exeessive suPPly or demand in foreign exehange market,will eontinueLo ae t 1 ts Passjve role.Without a aetive adjusLmenL in exehange rate,foreignrosorve will keep inereasing due tot,·acle accnzlnt an(1 financi1ccoun91]rpl,1 Thetird part15 mainly about China'5 cxchange rapicy and capi1 conLrpolicy under the ground of China'5 economic growtmacroeconomic stabilizat;ion.Beforo the middle of 19905',China'5 econ()m y has acllieved a sum.nedb ancegrowth sueeessfully by adjusting relative Priee of tradable to nontradable dulythrough various Poliey instruments.However,after 1994,fundamentals behindChina'5 balanee of paymenthave be...