Foreign Direct Investment (fdi) On China's International Balance Of Payments Impact Study

Since reform and opening-up, China has taken an aggressive strategy to attractinvestment. Ever since then, foreign direct investment (FDI) enters our country insuccession by the leading of this policy and it has played a promoting role in thedevelopment of our economy. Apparently, FDI has become an indispensable part toChina’s economic development. In the beginning, the impact that FDI has on ourbalance of payment is not obvious due to its small amount. However, FDI inflowincreases dramatically at the end of the20th century especially the beginning of the21st century as the boost of our opening-up policy, leading to the change in ourbalance of payment structure. Both current account and capital and finance accountkeep in continuous “double surplus” situation. Nowadays, our advantage on labor costis gradually taken by Southeast Asia countries; domestic economic growth slowsdown, so do the foreign direct investment. So there is important realistic meaning tostudy the effect of FDI on balance of payment under such context.This paper firstly combs related theories about the effect of FDI on balance ofpayment, trying to put them in one analytical framework and thus to establish thetheoretical basis of this article. Then this paper analyses the influence of FDI onChina’s balance of payment theoretically. It summarizes all channels through whichFDI influences balance of payment and analysis the possible impact within differentchannels, thus draw a conclusion about the influencing mechanism of FDI on balanceof payment. The results show that FDI affects balance of payment mainly throughtrade flow path and capital flow path. Processing trade of foreign-funded enterprisesis the main cause of current account surplus while return on investment offoreign-funded enterprises that remitted back to home country will narrow the currentaccount surplus. Under the background of incompletely open of capital account, it isobvious that FDI plays a great role in the surplus of capital and finance account.Afterwards, through the establishment of econometric model, this paper does aregression analysis by using co-integration on the data of FDI and related items ofbalance of payment from1985and2011, and then concludes the possible influenceFDI may have on China’s main items of balance of payment in the long term. Finally,we get a conclusion about the impact of FDI on China’s balance of payment accordingto the theoretical analysis and empirical result, and make corresponding policysuggestion in terms of adjusting investment structure and strengthening statisticalmonitoring links actual situation of China. We also look into the developmentdirection of this research.