The Study On Paths Of Reducing China's Trade Surplus

This paper focuses on how to reduce China's trade surplus. It explains the current situation of China's trade surplus and its impact on macroeconomics in detail. The two paths to cut trade surplus are: revaluation of the RMB exchange rate and the expansion of domestic demand. By empirical analysis and experience study, the appreciation of the RMB exchange rate has little effect on China's trade surplus. Expanding the domestic demand and changing the mode of economic growth to reduce trade surplus is the only way.The paper is divided into three parts.The first part discusses the situation of China's trade surplus and the macroeconomics impact on China's trade surplus. According to the "2005 China's international balance of payments"which published by the State Administration of Foreign Exchange, in 2005 China's international balance of payments current account surplus of 160.8 billion U.S. dollars over the previous year, and 92.2 billion U.S. dollars, an increase of 134.2%. Among them, exports of goods 762.5 billion U.S. dollars, imports of goods 628.3 billion U.S. dollars and 134.2 billion U.S. dollars surplus. China's trade surplus mainly in the processing trade surplus, The United States and EU with China is the most important source of trade surplus. The continued China's high trade surplus generated a lot of macroeconomic impacts. First, China's foreign exchange reserves rose sharply. By the end of 2005, China's foreign exchange reserves totaled 818.9 billion U.S. dollars, an increase of 34.3%. Second, the trade surplus has continued to widen and strengthen the speculators right to the expectation of a revaluation of the RMB. Third, the trade surplus influences monetary policy independence greatly. Fourth, it exacerbates the trade frictions between China and trading nations. Fifth, the trade surplus makes our country's dependence on foreign trade continue to increase. Finally, the continuing trade surplus means that export products have increased; economic resources have flowed to foreign countries, which reduces the welfare of domestic residents.The second part explores and discusses two paths of the reduction in China's trade surplus - the appreciation of the RMB and the expansion of domestic demand. BOP regulation theory tells us that the direct way to reduce the trade surplus is the appreciation of the exchange rate, which can limit exports and increase imports. But Japan's experience has shown that the appreciation of the yen had failed to resolve the trade surplus.The second path to cut the trade surplus is expanding domestic demand. After expanding the domestic demand, the over-supply of goods will be consumed by domestic residents. The over demand will turn to foreign market, and then the exports are reduced. The two results interacts each other, which reduce the trade surplus. That is to say, when a country's economic growth in consumption rather than relying on exports to pull, trade surplus situation will be fundamentally improved.The third part compares the two paths and puts up relevant policy recommendations. By the second part of the analysis, the appreciation of the RMB and the expansion of domestic demand will reduce the trade surplus in theory. However, the cause of China's trade surplus has no relationship with the Yuan appreciation, so the first way is not feasible to reduce the trade surplus. The only path relies on the expansion of domestic demand and changing the mode of economic growth. China's national savings are larger than investment; insufficient effective domestic demand is the root causes of trade surplus. China's "global processing center" status of the processing trade is another important reason. Finally, in the process of rapid export growth, China's import faces many restrictions. From the above analysis, we can see that China's trade surplus is not simply the result of the RMB exchange rate undervalued, but the main reason of China's trade surplus is internal economic imbalances. Therefore, we hope that through revaluation of the RMB exchange rate to reduce China's trade surplus is not feasible.The contribution of this paper is the point of topics and research methods. The majority of the literature on China's trade surplus with the discussion is limited to the description of the situation of the trade surplus, the causes and impact analysis. Even referring to the settlement of the excessively high trade surplus, the RMB exchange rate or consumption discussion is the only aspect. Based on the existing literature about the basis of China's trade surplus with the overall problem, expanding domestic is proved an effective way to reduce the trade surplus. The paper takes advantage of the qualitative analysis and quantitative analysis, empirical analysis and comparative research, which ensure and firm conclusions.