Empirical Study On The Influencing Factors Of China's Foreign Exchange Reserve

Foreign exchange reserve is a comprehensive variable and the ultimateoutcome of the international economic transactions. Since the reform of China'sforeign exchange management system and the gradual development of foreigntrade, China's foreign exchange reserve increases gradually and steadily. Till2005, it amounted to 8189 billion US dollars, ranking the second in the worldwhich only below to Japan's. Such gigantic foreign exchange reserve hasattracted various domestic and foreign attentions. Generally speaking, thedetermination of the scale of foreign exchange reserve is the interaction of itsdemand and supply factors.Through setting up two-period regression models this article does theempirical research on influencing factors of China's foreign exchange reserve. Itchooses the macroeconomic data of 1984—1993 and 1994—2005 respectively,and takes the differences of exports and imports, the amount of foreign directinvestment, the balance of foreign debts and the average foreign exchange rateper year as independents and the amount of foreign exchange reserve asdependent, uses the statistics software of SPSS and the "Backward" method todo linear regression, and it gets the conclusion of that the influencing factors of1984—1993 and 1994—2005 of China's foreign exchange reserve are different.According to the regression model, from 1984 to 1993, the main factors ofinfluencing China's foreign exchange reserve are differences of exports andimports and the amount of foreign direct investment which are positively relatedto the scale of foreign exchange reserve. From 1994 to 2005, the main factors ofinfluencing China's foreign exchange reserve are the average foreign exchangerate per year, differences of exports and imports, the balance of foreign debtsand the amount of foreign direct investment which are all positively related tothe scale of foreign exchange reserve. By studying these two periods' economicconditions, foreign trade conditions and foreign exchange management system ofour country, this article gives reasonable explanations to above conclusions. Atlast, it offers some policy suggestions on how to strengthen the management ofour country's foreign exchange reserve according to its influencing factors.