Research On The Causes And Trends For The Foreign Trade Surplus Of China

With the development of economic globalization and deepening of international divisionof labor, the integration of trade and investment is booming, thus China has been linked to theworld by world trade patterns and the international financial system. Foreign trade has givenimpetus to Chinese economy along with the gradual reform of RMB exchange rate regime andthe consistent execution of foreign direct investment policy. China’s foreign trade has beenprogressing and gained active balance explores annually since China got access to the WTO in2001. The foreign trade surplus continuously record new historical highs since2005. It is globalimbalances that draws world’s attention to China’s huge foreign trade surplus, which hasincreased sharply. But it isn’t the perfect result which China pursuits. So it must be studieddeeply.International trade surplus has been the focal point of international economics, whichcould date back to Mercantilist Period–devoting themselves to increase exports to obtain gold.Coalescence of finance, investment economics, division of labor theory with the actualinternational trade forced more and more scholars to study various factors on the impact oftrade surplus and how it would go on. Most of them focus on studying the exchange rate andforeign direct investment, which has various conflicts with each other. Previous analysis onimpact of FDI to a country’s trade surplus are mainly focused on the influence strategy; Heateddebate of exchange rate and trade surplus mainly centralize on whether it will affect or whatkind of prerequisite it needs. At present, China’s foreign trade surplus faces stressful situationsfrom home and abroad, including structural adjustment, exchange rates, inflation and so on. It issignificant to study the causes and trends of China’s foreign trade surplus from a theoreticalpoint of view and put forward corresponding practical policy recommendations which couldalso maintain stable and sustainable development of China’s foreign trade.In this paper, I start from the initial stages of China’s foreign trade, then in acomprehensive, multi-angle ways do I try to analysis the evolution of trade surplus andstructural characteristics based on the historical background, thus states new features andpressure we are facing. In analyzing the reasons for China’s foreign trade, I concentrate on theforeign investment to China and the RMB exchange rate’s impact of trade surplus. Analysis of FDI’s impact to trade surplus starts from the mode of application, the effects and structuralexplanation; for the debate of exchange rate, I mainly focus on the controversy about thereasons for explaining the relevance of exchange rate and trade surplus. Thus I do econometricsanalysis on the relationship between trade surplus, the RMB exchange rate and FDI. Throughthe establishment of vector autoregressive VAR model, this paper analysis the long-termcointegration relationship between the three variables using the method of Johansencointegration, and analysis the reaction of foreign trade surplus from pound of the exchangerate and FDI through the reaction impulse response. For trend predict, I do short-term forecastabout foreign trade surplus which combines short, middle and long-term analysis and thecauses.The main conclusions of this paper are as follows: Firstly, foreign direct investment is themain reason for China’s foreign trade surplus, foreign-invested enterprises who occupies thedominant position of China’s foreign trade are fundamental characteristics of China’s foreigntrade surplus. Foreign trade surplus means export expansion, import substitution, spillovereffects and other characteristics of foreign trade surplus. Secondly, China’s foreign trade surplushas the only long-term cointegration relationship with FDI and RMB exchange rate--the RMBexchange rate has negative relationship with foreign trade surplus,while the RMB exchangerate has positive relationship with FDI. The RMB exchange rate has decreasing but longduration impact on the foreign trade surplus from the impulse response implied from reactionimpulse response; FDI’s impact on foreign trade surplus is growing. Thirdly, China’s overallforeign trade surplus is narrowing in shor term because of the current world economic situation,increasing downside risks to the RMB appreciation and import promotion policies; In the longterm, subjecting to the adjustment of industrial structure of foreign trade and other effects, wecould enhance the total foreign trade surplus on the basis of maintaining no decrease. On basisof all above, this paper proposed a micro-macro perspective to guide rational economicrestructuring based on FDI and other aspects of policy recommendations.