Study On The US FDI To China And Sino-US Trade

Stepping into the 21^st century, as the developing country with the fastesteconomic growth and the most powerful developed country, China and UShave become the major driving force of world economic growthincontrovertibly. While the growing trade surplus between Sino-US hasbecome the focus of world's attention. There are several influencing factorsimpacting on Sino-US trade imbalance. In this paper, the author will researchSino-US trade imbalance from the point of view of US FDI to China. Thethesis will study on the relationship between US FDI to China and Sino-UStrade deficit, China export trade structure to US, and distribution of trade'sbenefits between two countries.In the first part (introduction), the relevant research of scholars fromhome and broad is outlined, the theoretical and practical significance of thissubject is introduced, and the structure of this paper is introduced, the mainviewpoints are also given.In the second part of this thesis, the author analyze the relationshipbetween US FDI to China and Sino-US trade, concluding that the substituteeffect of trade and creative effect of trade, which are generated from US FDIto China, cause the trade deficit between US and China in empirical analysis.The author get the conclusion from Johansen Co-integration Test in long-run,the effects of US FDI to China on trade deficit are much stronger than theeffects from other countries, and the effects of US FDI to China on exports toUS are much stronger than that on imports from US. The Granger Testconcludes that the increasing FDI from US and the other countries will cause trade deficit widened and exports to US increasing in short-run. Also, US FDIhas stronger effects on imports from US than exports to US. Basing on theempirical results and combining with the trade effects theory, the authorconcludes that US FDI to China has positive effects on Sino-US tradeimbalance. Since later 1990s, US FDI to China has become obviouslymarket-oriented and has China decreased imports from US by substituteeffect of trade. At the same time, cost-oriented FDI from US take the use ofcheap labor in China, producing goods for US and the whole world. WithChina integrating into international division system completely and being inthe end of international product chain, the creative effect of trade will becontinuing in long-term. So, Sino-US trade imbalance will be in existence inlong-term.The third part of the thesis discusses the influence from US FDI to Sino-US trade structure in the view of quantity and structure. The author analyzesSino-US trade structure and the industry characteristic of US FDI to China.Sino-US trade structure go through the conversion from primary products toindustry products; internal of industry products go through the conversionfrom resource-intensive products to labor-intensive products, even to capitalintensiveproducts. US FDI to China focuses on manufacturing, especially inchemical, computer & electronic equipment and communication equipment.The empirical test results say US FDI to China will bring Sino-US tradestructure to change and optimize exports trade structure. That's because USFDI to China mainly in mass consumer goods ad China become the exportbase for consumer goods. With company internal trade increasing, US–funded subsidiaries and brands increase their purchase of parts in China. It makes traditional industry division turn to technology division of internalproducts. Exporting technical and capital goods optimize Sino-US exportstrade structure.The fourth part of the thesis analyzes benefits distribution of Sino-US inprocessing trade. The author concludes that US get more benefits that Chinain the process. The chapter proposes theory of value chain, saying two headsof the chain are high added value and the bottom of the chain is low addedvalue. At present, in international producing process, mainly consisting oftechnology-intensive industry from developed countries, China is mainly inthe bottom of the U-chain, working for labor-intensive process. For China,accepting FDI from US to do processing trade will have positive effect onindustry upgrading, technology update and easing employment pressure,while presently trade condition for China isn't optimistic, as Chinaexchanging for visible benefits by selling its invisible benefits. With thedeveloping countries from ASEAN and Middle-South America getting intocompetition, profits range for China will diminish. As the final beneficiary,US is on two heads of the U-chain, mastering R&D and core technology,getting high profits by technology transferring or technological monopoly,and organizing marketing of final products. At the same time, importing finalconsumer goods to satisfy domestic exuberant demand also help USeconomic growth. In this view US get more benefits from this kind of FDI.On the basis of analyzing the influence of US FDI to China impacting onSino-US trade, the fifth part of the thesis summarizes the conclusion andproposes policy recommendation. To change Sino-US trade imbalancefundamentally and improve its status in international division system, theauthor suggests perfecting foreign investment policy, strengthening capitalflows, increasing technical content of US FDI, adjusting processing tradepolicy and expanding domestic effective demand.