A Study On The Trade Surplus Of China Under Global Imbalances

Since1994, China has a continuous and stable growth in trade surplus.But the trade surplus of China raises sharply after2004.In2008, it has reached295.47billion dollars.For a long time,trade has been a major factor for China’s economy growth,but it’s side effects are emerging.With the huge trade surplus, China’s foreign exchange reserves rise sharply. The trade surplus influences monetary policy independence greatly, exacerbates the trade frictions between China and trading nations, makes our country’s dependence on foreign trade continue to increase, and strengthen the appriciation pressure on RMB.So It’s very important to study the trade surplus of China.The world today is a global world, and it is more connected,so we should study the trade surplus of China from a global perspective.Nowadays,the main performance of global imbalances is that the U.S.current account deficits rise to a record level whereas its counterpart mainly Asian countries possess large surpluses.In America,the residents consume too much and leave little money to save.In China,the insufficient domestic demand and the export oriented trade strategy are the main reasons why trade surplus are increasing.Under the background of global imbalances,China’s trade balance need more international cooperation and coordination.Of all the reasons of China’s huge trade surplus,three factors are more important,they are savings rate, exchange rate regimes and foreign trade strategy.After China entered WTO,with the high savings rate, China’s trade surplus are mass.High savings rate makes the consumption insufficient and the gap between the savings and investments great.These result in huge trade surplus.Savings in the GDP are composed of resident, corporate and government savings. Starting2002, China’s savings ratio began to surge, with steadily rising resident savings and remarkable increase of corporate savings. China’s savings ratio increased from37.5%in1998to49.9%in2007. During the period, the ratio of corporate sector disposable income to the national disposable income increased from13%to22.5%, while the share of government disposable income to the total increased by only2percentage points.There are more reasons for China’s high savings rate.First, an inadequate social security system leads to high savings ratio. Second,the variation of the age structure is an important factor to affect the saving rate.Third, because of unfinished financial reforms and imperfect capital market,some companies which are not state-owned are hard to get enough capital.Fourth, The high rate of corporate savings in China is closely related to the unsolved distortion of cost/profit of enterprises during China’s economic transition.Fifth,the goverment consumption expenditure is lower.At the background of trade surplus rising rapidly, more and more People focus on the problem of rearrangement of RMB exchange rate.China’s center bank made announcement that reform RMB exchange rate mechanism in July21,2005, and adopt a managed float of RMB. But according to China’s actual arrangements,RMB exchange rate regimes was identified as other conventional fixed-peg arrangements by IMF in2006,and crawling pegs system by IMF in2007and2008.After that,the exchange rate between RMB and USD continue to high. But the trade imbalance become more and more serious,and the trade surplus has not been reduced effectively.Why the exchange rate of RMB has much smaller influence on China’s trade balance? China’s export have little elasticity to Renminbi exchange rate, and there are J curve effect of the influence of RMB exchange rate changes on trade balance.The high savings rate and foreign trade strategy also have some effects on trade surplus.So it’s almost impossible to adjust the trade imbalance only by changing Renminbi exchange rate.Export oriented and import substitution are two different development strategies more often used in the process of industrialization in developing countries.In recent years, China set export-oriented growth mode as its economic development model which successfully reached fast-growing GDP of China However,this kind of growth mode gradually shows up its negative effects. Especially, China’s trade surplus keep increase.The export-oriented strategy is effective in the fast developing stage of one country’s or a region’s economy, but it is constrained by the time.At present time, the export-oriented development strategy is confronted with more and more internal resistance as well as that from abroad.In order to keep sustainable development of our economy and reduce China’s trade surplus, a strategy of domestic-demand dominance rather than export-oriented should be adopted.To reduce the trade surplus of China,some suggestions are presented at the end of the paper:reform the international monetary system, decrease savings ratio, continue the reform of RMB exchange rate regimes,and adjust the export-oriented trade strategy.Main innovations in this paper:1、Study the trade surplus of China under the background of global imbalances.2、Think much of the effect of the global financial crisis on China’s trade surplus.3、Combine the adjustment of trade imbalance with the transformation of economy in China.