The Effect Of Korea's Foreign Direct Investment On The Trade Balance Between China And Korea

Along with the quickening development of FDI and international trade of China, China has gradually become one of the most important members of the world market. It seems to be particularly important for China to analyze the relation between FDI and international trade. Foreign Direct Investment (FDI) is becoming main strength for influence of trade on increasement between various developing countries. As a whole, the interaction and interrelation between international trade and FDI are strengthened day by day. At the same time, FDI has gradually had a great impact on the trade balance of one country. This paper will research the relation between Korea's direct investment in China and Sino-Korean trade balance to find out the effect of FDI.Korea is one of the main sources of FDI and the trading partners of China. Since the normalization of the diplomatic relationship in 1992, trade and Korea's investment to China has increased rapidly. As a result, China is now Korea's largest trade partner and the largest investment destination. It is beneficial for making Chinese economic policy concerning Korea to study the relation between Korea's direct investment in China and Sino-Korea's trade. However, there are few systematic researches on the relation between Korea's direct investment and Sino-Korean trade balance. Based on the latest theory, the author has a preliminary discussion about the relation.This paper has four parts. The first part of the paper is the relevant theory about the relation between FDI and trade balance. It introduces the research background, the existed study of relevant papers and researches and the structure arrangement of this paper. The second part is the analysis of historical and current situation about Korea's direct investment to China and the bilateral trade development of these two countries. This part summarizes how the Korea's direct investment impacts on Sino-Korea's bilateral trade. The third part decribes the trade imbalance situation of Sina-Korea's bilateral trade and analyses the Korea's direct investment'effect on bilateral trade imbalance. The author finds out the Korea's direct investment has positive impact on China's trade deficit. On the last part, the forth part, the author makes conclusion of this paper and proposes relevant policies about improving China's trade balance. China and Korea should work on this issue together to achieve mutual benefit and win-win results.