The Study Of Mutual Relation Between China’s International Trade And Foreign Direct Investment

International trade and development of investment liberalization is the most important propeller for economic globalization at present and provides most external conditions for all countries especially developing countries to take part in international specialization and develop their own economy. In this condition, characteristics and relationship of changes of international trade and investment naturally become the focus of every country. This paper firstly analyzes evolvement path and characteristic of international trade and investment and then researches law of development of Chinese foreign trade and foreign direct investment since reform and opening-up on this basis, and adopts the popular gravity model of trade and granger causality test to analyze the relationship between foreign trade and international investment during last twenty years. There are some major conclusions including:Since the ending of World War II, with the development of international trade and investment liberalization, the development pace of international trade is significantly higher than the development of the world’s GDP and the source of power comes from intra-company trade of multinational corporations. European and American’s proportions in international trade tend to reduce, and Asian’s influence increases significantly. The status of absolute advantage of industrial products intensities, intermediate products become the subject of international trade and technological structure of trade goods optimizes continuously. The average growth rate of foreign direct investment is higher than international trade during the period of volatility and foreign investment effectively promotes formation of fixed capital in the world. Developed countries are dominant players in foreign direct investment, but the influence of developing countries is increasing. The preferred field of FDI experienced alternating process from manufacturing industry to service industry and then turned to manufacturing industry. Transnational merger and acquisition is the main entrance way of FDI, especially in service industry. After the People’s Republic of China was founded, especially after third plenary session of11th central committee of the Chinese communist party, complying with the development of international trade and investment liberalization, Chinese foreign trade has experienced slow, fast, faster and high speed periods, through promoting the reform of economic system continuously. At the same time, the structure of Chinese export and import goods is changing continuously, manufacturing products, intermediate goods and middle, high technological goods have dominated Chinese trade. Although Chinese foreign trades have diversified, European and American markets have dominated exports and Japan, South Korea and Hong Kong have dominated imports. Chinese foreign direct investment has experienced five periods of exploration, preliminary development, rapid development, adjustment and steady development and it shows a trend of rapid development as a whole. At the same time, Asian’s countries have played a major role in the sources of foreign direct investment and there are little changes of other areas. In terms of destination, coastal regions is the most attractive areas for foreigners to invest, the percentage of FDI attracted by East China has gradually increases and the percentage attracted by South China has gradually decrease.Based on the above analysis, the gravity model has been adopted to test the mutual impacts of foreign direct investment on foreign trade. Results of econometric analysis show that inflow of foreign direct investment has a promoting effect on exports and imports, but the positive effect on exports is higher than that on imports. The reason for this positive effect on exports and imports is that China’s foreign direct foreign direct investment has market-oriented and cost-oriented features. Our test on the impacts of foreign trade on foreign direct investment indicates that export can promote foreign direct investment inflows significantly, while import has a weaker impact. These findings implies that the foreign investors come to China mainly in hope of exploiting the cheap production resources and preferential policies in China, while the incentive of vicinity to market is less important.Analysis of relationship based on Granger causality test shows that there is two-way Granger causality relationship between Chinese exports and foreign direct investment in the short run, and this relationship is complementary. There doesn’t exist a significant relationship between FDI and imports, and concludes that there doesn’t exist a long-run stable relationship between FDI and exports or imports. This complementary relationship between FDI and exports is produced by Chinese cheap labor resource and abundant factor endowment. Many other countries start up enterprises in China and use cheap labor resource and abundant factor endowment, this investment drives exports of equipment and other capital goods on one hand, parts of intermediate and finished goods produced by foreign direct investment will reflow to those countries ultimately on the other hand.At last, based on the conclusions above, this paper puts forward some policy suggestions for the development of Chinese foreign trade and foreign direct investment.